Turkey's annual inflation rate decreases in February

ANKARA

 The annual inflation rate fell to 8.78 percent in February from 9.58 percent in January, the Turkish Statistical Institute reported Thursday.

Inflation decreased 0.02 percent in February from the previous month, the report said.

The highest monthly increase was 1.84 percent in health services, the report said.

The highest annual increase was 13.12 percent in hotels, cafes and restaurants.

“February is a low inflation month from a statistical perspective,” economist Bora Tamer Yilmaz at Ziraat Securities told Anadolu Agency. “Because after the New Year price adjustments in January, there is less need to increase prices in just a month's time. Such a positive surprise will have implications for the monetary policy and lira asset prices.”

Yilmaz said that tamed food inflation contributed significantly to the improvement.

“In fact, core inflation and services inflation still run at relatively high levels indicating persistent inflationary pressures,” he said.

The market has been concerned about double-digit inflation, Yilmaz said.

“Now we can say that inflation peaked in January and we should rule out double-digit inflation scenarios. We can see a dip in April below 8 percent depending on the volatility of food prices and how far food prices can improve. On the back of current dis-inflationary process, the central bank can start with its simplification this month,” Yilmaz added.

The Turkish Central Bank said Monday, in the summary of its monetary policy committee meeting on Feb. 23, that leading indicators for February suggested a downtrend in food inflation, while annual energy inflation was seen falling due to oil price developments.

"In sum, energy prices continue to affect inflation favourably, while other cost factors limit the improvement in the core inflation trend," the bank said.

“The most important factor is that, food and nonalcoholic beverages prices fell by 0.04 percent on monthly basis. This made food inflation decline to 8,83 percent annually,” ALB Securities analyst Enver Erkan said.

According Erkan, the Turkish government’s intervention on meat prices seemed to have an effect in the lower inflation.

The country's Food and Agriculture Ministry decided on Feb. 10 to impose a price ceiling for red meat in a bid to control price rises.

According to new price regulations, the maximum price for a kilogram of ground meat is 32 Turkish liras (around $10.9), while the maximum price of a kilo of diced meat is 34 liras ($11.6).

Enver also discussed the effect of low oil prices on inflation.

Oil prices have fallen 65 percent since mid-2014, from $115 a barrel in June 2014 to below $30 per barrel in 2016 (now $36.41 per barrel) reaching their lowest level in seven years, and recording the most rapid decline since 2008.

“But, because of high foreign currency rate, core inflation continues to increase. Because of the lower February inflation, the March meeting of Central Bank could be more lively. There’s no reason to tighten monetary policy," Enver added. 

Inflation figures are closely watched in Turkey as Central Bank officials have said they would maintain a tight monetary policy until there are clear signs of improvement in the inflation outlook.

International rating agency Moody’s expects the country's inflation at 8 percent at the end of the year.