Turkish fruit market - Credit Bloomberg
The Central Bank of Turkey might be even less willing to cut interest rates after already signalling it remains reluctant to adjust its crisis-level monetary settings.
editor's pickMonday 04, February 2019
(Bloomberg) --A run-up in Turkey’s food costs halted a broader deceleration in price growth after two months.
Inflation picked up slightly in January to 20.4 per cent from a year earlier after a gain of 20.3 per cent in the previous month, Turkstat said on Monday. The median of 23 forecasts in a Bloomberg survey of economists was for 20.3 per cent. Food and non-alcoholic beverage costs surged an annual 31 per cent, the most since at least 2004.
Shortages caused by flash floods in Antalya, a hub for greenhouse farming, are making matters worse after the rapid depreciation of the lira in August raised the cost of food imports and transportation.
“The central bank now has a unique opportunity to bring inflation lower,” Morgan Stanley economists including Pasquale Diana said in a report before the data release. “This in itself warrants the continuation of a tight stance.”
President Recep Tayyip Erdogan announced last month that power and natural gas prices for consumers were slashed by 10 per cent from 1 January Turkey is also extending reductions on special consumption and value-added taxes -- mainly targeting housing, white goods, furniture and cars -- for another three months upon their expiry on 31 December, according to Treasury and Finance Minister Berat Albayrak Annual food inflation has been near 20 per cent or higher since June; retail food prices in Turkey’s largest city added 2.53 per cent on a monthly basis in January, according to the Istanbul Chamber of Commerce
Under the central bank’s base-case scenario released last Wednesday, headline inflation will end this year at 14.6 per cent, down from its previous call of 15.2 per cent. Governor Murat Cetinkaya said that policy makers “will continue to maintain the level of tightness necessary to achieve single-digit inflation in the shortest period of time possible.”
Adjusted for current inflation, Turkey’s real rate is near four per cent -- higher than the level of around two per cent in emerging markets as a whole -- and will average about five per cent in the rest of 2019, according to Morgan Stanley.