Turkey Inflation Keeps Accelerating Amid Weak Lira, Energy Costs

(Bloomberg) -- Turkey’s consumer inflation accelerated for a fifth month in October, driven by a surge in the cost of energy and weak lira. 

Prices rose an annual 19.89% through last month, up from 19.58% in September, while the median estimate in a Bloomberg survey of 20 analysts predicted an acceleration to 20.35%. Monthly inflation was 2.39%, compared with the median estimate of 2.8% in a separate survey.

Key Insights

• Annual price gains in food, which makes up roughly a quarter of the consumer basket, fell to 27.41% from 28.79% amid weak lira and supply bottlenecks
• Food inflation still remains well above official estimates even after the central bank revised its end-2021 estimate last week to 23.4% from 15% in July.
• The rate of inflation in energy rose to 25.76% in October from 22.77% the previous month. A tax mechanism intended to stabilize gasoline prices cushioned the spike in global energy prices.
• A core inflation index showed prices excluding volatile items such as food and energy also rose an annual 16.82%, slightly down from 16.98% in September, a sign of strong inflationary pressures underlying the headline figure.

Markets

• The lira trimmed its losses after the report and was trading 0.3% lower at 9.6350 per dollar at 10:04 a.m. in Istanbul.

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• The acceleration takes Turkey’s benchmark interest rate adjusted for inflation to negative 3.89%, one of the lowest real yields among emerging markets.
• Retail price inflation in Istanbul, Turkey’s business capital, climbed to 20.76% last month from 19.77% in September.
• The central bank will hold its next rate-setting meeting on Nov. 18.
• Two consecutive surprise rate cuts since September have carried the lira’s year-to-date depreciation against the dollar to more than 20%, the worst among all major currencies tracked by Bloomberg.

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