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Report released by Turkish Statistical Institute (TURKSTAT) on Wednesday showed that consumer price inflation in Turkey rose more-than-expected last month. Data Turkish July CPI rose to a seasonally adjusted 1.16 percent, from 0.47 percent in the preceding month, beating expectations for a 0.72 percent rise. The major impetus was from food prices, which CBT had explicitly warned about.
Turkish CPI for July showed marked acceleration, especially at headline level, just as the Central Bank of the Republic of Turkey (CBRT) had warned at its last MPC meeting. Headline CPI was up 1.2 percent m/m vs. much higher than consensus at 0.6 percent and faster than the 0.5 percent increase of June. The year-on-year inflation rate reached 8.8 percent after having dropped to 6.6 percent in May. Core inflation was flat compared with June at 8.7 percent y/y, and did not moderate as the market had expected.
In a separate report, Turkey's domestic producer prices increased 3.96 percent annually in July after a 3.41 percent climb in June. The figure topped economists' prediction of 3.93 percent. On a month-on-month basis, domestic producer prices rose 0.21 percent in July, broadly in line with economists' expectations.
In its quarterly inflation report released on July 26, the CBRT said that the inflation rate would fluctuate between 6.6 percent and 8.4 percent throughout 2016. Core inflation is unlikely to see downtrend over the coming quarters, especially if political developments were to lead to fresh USD-TRY spikes.
"We would expect CBT to, at best, cut the overnight lending rate by another 25 basis points in August -- we do not foresee more aggressive easing just yet. We see USD-TRY at 3.25 by end-2016,” said Commerzbank in a report.
