Lower commodity prices to reflect in Turkey's mild inflation moderation next year

Because of the significant deal between Turkey and EU last week, the lira climbed for much of this week, but reversed its course yesterday after the lower than expected November CPI data, specifically after the ECB's underwhelming monetary policy decision.

After the CPI, there will be difficulty in believing the possibility of negative surprise now after 2 years of disappointment, but still the market appears lagging behind the curve.

November headline CPI increased to 0.7%mom against 0.4% of consensus expectation. Importantly, the main measure of core inflation hit 9.2% yoy from 8.9% in October, with the core rate now approaching significant high as in 2014.

CBT has openly admitted that core inflation is yet to show any encouraging dynamic, and will only gradually calm down if and when the lira has stabilized. Hence, the data were possibly not such a surprise to the CB. 

"We expect lower energy and commodity prices to reflect in mild inflation moderation next year, but a steady pace of lira depreciation is likely to keep inflation elevated in the 7%-9% range through 2017, with our average forecast for 2016 being 7.4% and average for 2017 8.1%", says Commerzbank in a research note.