Consumer prices in Turkey increased by 1.12% in August, while annual inflation was 19.25%. As the monthly and annual increase in food costs absorbed the price drops in passenger cars, inflation rose rapidly and exceeded the policy rate of the Central Bank, causing the real interest rate to fall to negative compared to the current inflation. In light of the high inflation realizations, we think that the current fluctuation may be higher than the Central Bank’s forecast, therefore, our more cautious inflation expectation for the end of the year is determined as 16.3%.
If we look at the sub-items of inflation; An increase is observed in many of the main expenditure groups. Indicator C, which excludes variable items such as food and energy, decreased from 17.2% in July to 16.8% in August on an annual basis. The opening with core inflation is actually a sign of strong pressures underlying general headline inflation. In this context, it is revealed that there is a very large upward effect on food prices. Food prices, which make up about a quarter of the inflation basket, showed a significant increase from 24.9% last month, pointing to an annual food inflation of 29%. As such, it remained well above the Central Bank’s year-end food inflation forecast of 15%. The monthly increase in food and non-alcoholic beverages is 3.18%, and it stands out as the item that makes the most periodic contribution to inflation. On the energy inflation side; With the decline in global oil prices in August and the appreciation of TRY against the USD, the annual increase slowed to 20.7% from 21.5% in July. Transportation prices decreased by 0.77% in August, as the government’s changes in the tax base limits for some passenger cars led to a decrease of approximately 15% in the final prices of vehicles with price tags up to 300K TRY.
Food and non-alcoholic beverages stood out with 3.18%, restaurants and hotels with 2.27%, household goods 1.38%, miscellaneous goods and services 1.21%, and entertainment and culture 1.13% comes out as items that showed higher increases than headline inflation. It is observed that the expenditure groups with high increases are concentrated on the food and services group. On a monthly basis, only clothing and footwear declined by 3.08% and transportation by 0.77%.
We see that the PPI increased to 45.5% annually. Considering that the cooling in domestic demand has not yet been realized at the desired level and is following a strong course; The potential impact on the pass-through from PPI to CPI poses a significant risk in terms of potential. Therefore, it is seen that the factors affecting the PPI still have not had a positive effect despite the retreat in the exchange rate in the last 1-1.5 months. In this case, the inability of inflation to respond to a decrease in exchange rates as much as it does to an increase in exchange rates causes a sticky effect and is likely to cause a recovery phase that will spread over a longer period compared to the 2018 exchange rate shock. In this context, we think that the recovery of the main indicators and general trend of inflation will not be within the current period or in the next period, and that reaching the single digits may be towards 2023.
In terms of inflation realizations in the coming months; We are likely to see some rigidity within the scope of services inflation on a periodic basis. Especially within the framework of the effect of spreading from private to general; Apart from the natural effects, we can see the effect of opening up economies in rent (demand and housing costs), restaurants and hotels (openings, social life mobility, rent inflation also affects prices here), transportation (currency, energy prices, demand) services. Regarding the said expenditure groups, the service providers both to cover their increasing costs, to reflect these costs to their prices faster with the effect of increasing demand in the economy, and to the loss of turnover caused by the previous months cause high price increases and may occur in the future.
The CBRT will hold its next interest rate meeting on September 23. The Central Bank emphasized the core inflation phenomenon more in the last economist meeting and it tends to make balance changes at the reference point. In this context, we do not expect any upward movement from the Central Bank at the September meeting. We think that September is not a period in which interest rate cuts can be made due to the current negative real interest rate position and the risk of Fed financial market effect. In this context, we anticipate that the CBRT tends to see downward trend in inflation in the first place. Considering that the downtrend will probably come to the fore a little after October due to the base effect, we would see a rate cut more likely in a period when headline inflation is down. In this context, within the framework of our revised inflation expectation of 16.3% at the end of the year, the Central Bank may reduce by 150 basis points in total from October until the end of the year.
Kaynak
Hibya Haber Ajansı
Kaynak: Hibya Haber Ajansı
