Consumer prices in Turkey increased by 1.25% in September, while annual inflation was 19.58%. While the increase in energy costs put pressure on inflation to accelerate, the core C indicator, which is currently closely monitored by the Central Bank, also rose and stood at 16.98% in September. In general, that seems to be in line with the market expectations, while we expected a slightly higher increase in headline consumer prices.
If we look at the sub-items of inflation; An increase is observed in almost all of the main expenditure groups. The increase in food prices, which make up about a quarter of the consumer basket, was limited to 0.5% in September. Annual price increases in food are still higher at 28.79% due to the weak lira, dry weather impacting the harvest and supply bottlenecks. Energy inflation rose from 20.72% in August to 22.77% in September. The scale mobile system, which is a tax mechanism aimed at stabilizing gasoline prices, softened the impact of the increase in global energy prices on domestic fuel prices in September.
As the items that showed a higher increase than the headline inflation, education stands out with 5.15%, household goods with 3.33%, housing with 2.34%, restaurants and hotels with 2.22% and various goods and services with 1.49%. Expenditure groups with a high increase indicate that there is a risk in core goods and services and explain the increase in core inflation compared to the previous month. On a monthly basis, only clothing and footwear decreased by 0.16%.
Inflation is high as it has reached the 20% limit in general. The Central Bank, on the other hand, is currently looking at core inflation, which is lower. Mr. Şahap Kavcıoğlu made a surprise cut in interest rates shortly after emphasizing the role of core prices in his forward-looking direction, citing temporary factors affecting inflation. In October and November, inflation may be lower due to the base effect, as there were slightly higher price increases in the same months last year. The increase in food prices seems likely to continue, because both the climatic conditions and the agricultural input effect of the increase comes from the exchange rate cause the price increase trend to continue. We expect the increase in energy prices to continue with the effect of exchange rate and worldwide price increases, also.
The Central bank will hold its next rate-setting meeting on October 21. What will the Central Bank do under these conditions? It seems very likely that there will be another rate cut in October, and we think that this can be done proportionally within a perspective similar to the rate cut in September. If the Central Bank is based on core inflation, it can make interest rate cuts in series, but we see this policy as risky. We think that the overall inflation will be more useful, especially in terms of the functioning of the pricing mechanism, and that the Central Bank should model within such a risk assessment. However, as of its latest statements, it seems that the Central Bank will continue to cut interest rates according to the core inflation perspective, and when food/energy prices are eliminated, the lower rate that emerges can be the basis for rationalized interest reductions and the said area can be evaluated. In this policy practice, it is possible that the exchange rate will increase further and this will increase import-induced price pressures, especially through the exchange rate pass-through mechanism, in terms of price stability. Therefore, we expect the hyperinflationary outlook to continue once periodic base effects are excluded.
We also see risks regarding the core inflation perspective. Indicator C was higher than the previous month in September, and there are high realizations in core goods and services in periodic price increases. In this area, we have previously warned that secondary effects may be up. Especially the trend after the October – November period should be followed carefully.
Kaynak Tera Yatırım-Enver Erkan
Hibya Haber Ajansı
Kaynak: Hibya Haber Ajansı
