Turkey's core inflation noticeably accelerates

Yesterday's CPI reading was worse-than-expected, with headline inflation re-accelerating to 7.95%y/y from 7.1%. Core inflation of the country is noticeably accelerating to 8.23%y/y (vs. consensus: 7.85%). 

The CenBank has estimated for some time now that lira pass-through will push up inflation steadily for the remainder of the year, and that there is now upside risk to CBT's 8% end-2015 target for inflation. 

The lira has benefitted in recent days from dovish developments in G10 bond markets, in particular the slippage of the 10yr US treasury yield to below 2%, but the inflation data tell us why any rally is likely to be capped, says Commerzbank.

With global market interest rates backing off, CBT's weighted average cost of funding for banks has also declined from 9%-plus in late-September to 8.86% now, which also exposes the currency to any negative macroeconomic news.