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Turkish Inflation Slows Again as Food Prices Bring Relief

Turkish Inflation Slows Again as Food Prices Bring Relief

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Turkey’s inflation slowed for a second month thanks to a moderation in food costs as weak domestic demand continues to weigh on prices.

Consumer prices rose 18.7% in May from a year earlier, compared with an increase of 19.5% in April, Turkstat said on Monday. The median estimate in a Bloomberg survey of 18 economists was 19.3%. Prices grew 1% in the month.

Key Insights

  • Food inflation slipped to 28.4% from 31.9% the previous month, which was the highest level since at least 2004. It remains well above the central bank’s year-end forecast of 16%.
  • Seasonal factors and a deceleration in the price of vegetables are contributing to the slowdown in food inflation. Nevertheless, the government has struggled to keep food costs in check despite a campaign of threats, fines and sales at discounted prices. Food inflation hovered near 30% in the first quarter.
  • A core index that strips out volatile items such as food and energy dropped to 15.9% from 16.3%, showing an improvement in the underlying price dynamics.
  • Producer prices rose an annual 28.7%, compared with a gain of 30.1% in April, showing that manufacturers and service providers are still passing higher costs from the lira’s weakness on to consumers.
  • Inflation will slow further in the coming months, but that will give the central bank only limited room to ease monetary policy amid political uncertainties such as this month’s rerun municipal elections in Istanbul, according to Jason Tuvey, an economist at Capital Economics in London.

Markets

  • The lira weakened after the data, trading 0.6% weaker at 5.8732 versus the dollar at 11:16 a.m. in Istanbul

Get More

  • Read more on the central bank’s latest inflation report here.
  • The next inflation report is scheduled for July 31

--With assistance from Harumi Ichikura.

To contact the reporter on this story: Cagan Koc in Istanbul at ckoc2@bloomberg.net

To contact the editors responsible for this story: Onur Ant at oant@bloomberg.net, ;Constantine Courcoulas at ccourcoulas1@bloomberg.net, Paul Abelsky

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