Turkey: Inflation largely unchanged in January, core inflation dips
Consumer prices rose 1.06% from the previous month in January, contrasting December’s 0.40% decline, according to data released by the Turkish Statistical Institute (Turkstat). January’s rise was chiefly driven by higher prices for food and non-alcoholic beverages; health; and recreation and culture.
Inflation edged up from 20.3% in December to 20.4% in January, although core inflation went down from 19.5% to 19.0%. The continued decline in core price pressures was likely the result of government tax cuts and the strengthening of the lira observed since the end of Q3 2018.
A less supportive base effect will keep inflation elevated in Q1, while a potential loosening of fiscal policy in the run-up to regional elections at end-March, and the likely expiry of temporary tax cuts at the end of the first quarter, could stoke prices further in H1. However, inflation should decline notably in H2 on soft domestic demand and a more supportive base effect.
Regarding what the latest inflation numbers could mean for monetary policy, Gökçe Çelik, senior CEE economist, states:
“The CBRT sounded cautious in its latest announcements. We welcome this as the […] inflation outlook supports rates being maintained at current levels until at least late 2Q19. While the probability of unexpected rate cuts has declined, we cannot rule out the possibility that political calls for lower interest rates will resume in the run-up to local elections, especially if the economic downturn is seen as weighing on the ruling party’s poll numbers.”