Turkish inflation rises to 19.6% after surprise rate cut (updated)
04/10/2021 08:56
(Adds analyst comment)
By Ali Kucukgocmen
ISTANBUL, Oct 4 (Reuters) - Turkey's annual inflation rose
by 19.58% in September to its highest in two-and-a-half years,
data showed on Monday, pushing real yields further into negative
territory after the central bank surprised markets by cutting
its policy rate last month.
Inflation was slightly less than expected. But it has
remained in double-digits for most of the past five years and
emerged as a main concern for investors and savers given
political pressure for easier monetary policy.
Month-on-month, consumer prices rose 1.25% in September, the
Turkish Statistical Institute said, compared to a Reuters poll
forecast of 1.35% and an annual forecast of 19.7%.
After headline inflation rose above the policy rate in
August, the central bank started emphasising core "C" inflation,
and later cut its key rate TRINT=ECI by 100 basis points to
18%. The "C" measure also rose to 16.98% in September.
The bank will likely cut rates again this month due to
political pressure despite the rise in both core and headline
inflation, said Jason Tuvey, senior EM economist at Capital
Economics, adding core inflation was still below its June peak.
"With inflation likely to fall sharply in the final couple
of months of the year and early next year, further aggressive
easing lies in store," he said, adding the lira is likely to
decline sharply as a result.
The lira's depreciation poses upward risks to inflation due
to Turkey's heavy import bill priced in hard currencies.
The monthly rise in September's headline inflation was
driven by the education group, which rose 5.15%, as schools
re-opened, and the furniture group, which increased 3.33%.
FOOD PRICES
The food and non-alcoholic beverages group rose only 0.05%
month-on-month in September but year-over-year it was the
leading group, up 28.79%.
Tuvey said there were "early indications" that food price
inflation had passed its peak, after driving the rise in the
headline figure in recent months.
Central Bank Governor Sahap Kavcioglu said last week that
pricing behaviour is expected to return to pre-pandemic
conditions as normalisation progresses.
He said that it is difficult for monetary policy to have an
effect on food prices, which were hit by drought and other
factors.
The producer price index rose 1.55% month-on-month in
September for an annual rise of 43.96%, the data showed,
declining from a near three-year peak of 45.5%.
Annual inflation has marched higher all year. The official
target is 5%.
In July, the central bank raised its year-end inflation
forecast to 14.1%, bringing it closer to the market median,
which has risen continuously throughout the year to 17.83% in
the latest poll.
Oyak Securities said rate cuts should not continue after
September's inflation data, adding that guidance by the central
bank during an investor meeting this week will be important.
The lira TRYTOM=D3 weakened 0.2% after the inflation data
release and touched 8.880 to the U.S. dollar. It hit a record
low of 8.9490 after the rate cut and is down some 17% this year.
After last month's cut, economists now expect the bank to
lower its policy rate further by the end of the year and several
institutions forecast a cut to 15% by mid-2022.
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(Reporting by Ali Kucukgocmen; Additional reporting by Nevzat
Devranoglu, Berna Suleymanoglu and Halilcan Soran; Editing by
Dominic Evans, Jonathan Spicer and Ed Osmond)
((ali.kucukgocmen@thomsonreuters.com , @alikucukgocmen;
+905319306206; Reuters Messaging: Reuters Messaging:
ali.kucukgocmen.thomsonreuters.com@reuters.net))