Turkey: Inflation surges in August, Central Bank signals imminent change to monetary stance
Consumer prices rose 2.3% from the previous month in August, up from July’s 0.6% rise, according to data released by the Turkish Statistical Institute (Turkstat). August’s price increase was chiefly driven by higher prices in the transportation; and housing, water, electricity, gas and other fuels sub-sectors.
Inflation increased for the fifth consecutive month, surging from 15.8% in July to 17.9% in August, fueled by the depreciation of the currency and an unfavorable base effect. In addition, core inflation reared up from 15.1% to 17.2%, while annual average inflation rose from 12.0% to 12.6%.
In light of the inflation figures, the Central Bank published a communiqué stating that there are “significant risks to price stability”, and that the “monetary stance will be adjusted at the September Monetary Policy Committee Meeting”. The size of any rate hike will be key to reassuring markets of the Bank’s commitment to bring inflation down and restoring some semblance of calm to the currency market.
Looking ahead, inflation is likely to rise further in the near term, due to the recent plunge in the lira and higher inflation expectations influencing price-setting behavior. Price pressures should then gradually ease on softening domestic demand, although the extremely volatile currency remains a key source of uncertainty to the inflation outlook.