Turkey’s Inflation Cools as Cheaper Oil Outweighs Lira Losses

(Bloomberg) -- Turkey’s inflation slowed for the first time in five months in March, as lower oil prices and a dip in economic activity amid the coronavirus pandemic more than offset upward pressure from the lira’s depreciation.

Consumer prices grew 11.9% from a year earlier, compared with an increase of 12.4% in February, the Turkish statistics agency said on Friday. The median of 22 forecasts in a Bloomberg survey was 11.8%. Prices rose 0.57% in the month.

Key Insights

• Food inflation slowed to 10.1% from 10.6% the previous month. It is just below the central bank’s year-end forecast of 11% after hovering above its projections for much of last year
• Prices of some vegetables dropped after produce that couldn’t be exported due to the coronavirus measures were sold in the domestic market
• A core index that strips out the impact of volatile items such as food and energy rose to 10.5%, showing some deterioration in the underlying price dynamics, possibly related to the lira’s weakening against the dollar amid global sell-off; monthly producer price inflation climbed to 0.87% from 0.35%
• The price deceleration in March brings Turkey’s real rate to -2.11%, still among the lowest in the world. The central bank slashed its benchmark by a full percentage point to 9.75% last month as part of its emergency measures against the outbreak

Markets

• The lira was little changed after the data and was trading 1.2% lower at 6.6848 versus the dollar at 10:11 a.m. in Istanbul
• The currency has retreated around 11% against the dollar this year; the depreciation lags far behind emerging-markets peers like the Brazilian real or South Africa’s rand

Get More

• Policy makers project inflation will end the year at 8.2%, according to their latest quarterly report. Central bank Governor Murat Uysal predicts that price growth will start slowing from the second quarter and drop to single digits from the second half. Read more on the central bank’s inflation expectations here
• Retail prices in Istanbul, the country’s largest city, rose 0.33% on a monthly basis and 12.47% yearly in March
• The Turkish central bank’s next rate-setting meeting is scheduled for April 22

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