Turkey's consumer inflation rate goes up in July

By Bahattin Gonultas

ANKARA

Turkey’s annual rate of consumer price inflation climbed beyond expectations in July, led by a surge in alcoholic beverages and food prices.

The annual inflation rate was 8.79 percent in July compared with 7.64 percent in June, the Turkish Statistical Institute said Wednesday.

The median estimate rate forecast was 8.23 percent, according to Anadolu Agency’s Finance Desk survey of economists.

Monthly inflation increased by 1.16 percent in July from the previous month, TurkStat said.

Alcoholic beverages and tobacco prices rose to an annual 19.36 percent through July, compared with 12.80 percent in June.

Food prices also went up to an annual 9.69 percent in the month.

Clothing and footwear sector saw the highest monthly decrease with a 4.14 percent fall.

Gizmen Nalbantli, an Istanbul-based analyst at Isik FX, said: "Inflation rose, both on a monthly and yearly basis, in July to a six-month high.

"Effect of the minimum wage level raise and the depreciation of the local currency lira will probably lead the number of the inflation to 8 percent as of December 2016," Nalbantli said.

Finansbank said in a client note: "The rise is mainly driven by the increase in unprocessed food and cigarette prices.

"Looking ahead, food inflation may remain high due to the removal of Russia's sanctions on Turkey's exports."

Moreover, if it sustains, the recent currency depreciation will create fresh upside pressures on consumer prices and deteriorate the main trend of the core indicator, Finansbank added.

Turkey’s Central Bank Governor Murat Cetinkaya said on July 26 the inflation rate would fluctuate between 6.6 percent and 8.4 percent throughout 2016.

“The midpoint in 2016 will be 7.5 percent and 6 percent in 2017," Cetinkaya said.

The Central Bank had cut the overnight lending rate by 25 basis points to 8.75 percent while it kept its benchmark one-week repo rate on hold on July 19 after a failed coup attempt on July 15.

In its quarterly inflation report released on July 26, the bank said: inflation was higher in the second quarter of the year due to energy prices and food prices.

The Turkish lira lost its value against the U.S. dollar after inflation data, which was trading at 0.65 percent lower at 3.01 per dollar at 11.30 a.m., Istanbul time (0830GMT).