June Inflation: En-route to dis-inflation

Turkish Economy: June Inflation

En-route to dis-inflation

CPI declined by 0,27% MoM against market expectation of an 0,1% increase. Annual CPI inflation further decelerated to 10,9% while core inflation eased to 9,2% YoY. PPI inflation stayed almost flat with 0,07% MoM bringing the annual figure down to 14,9%.

Key Take-aways:

  • Momentum indicators continued to show that inflationary pressures are abating markedly (cover figure).
  • Mean-reversion in food inflation started that may pave the way to a probable correction in July to drift headline towards single digits.
  • Input related cost pressures diminished in line with tendency surveys and commodity price developments.
  • Sources of inflation i.e. fiscal measures, currency, and energy prices phasing out.
  • Decisive and lasting dis-inflation trend to start in 2018.

Food Inflation

Annual food inflation has peaked in May with 17,4%. In June, unprocessed food prices have declined by 1,2% MoM. With this decline mean-reversion has started bringing the annual figure down to 14,6% (Figure 1). Food Commission’s new measures regarding meat products may further help dis-inflation. This year in the month of January price level has departed from the historical pattern significantly with a jump (Figure 2). Recent developments increase the probability that prices will converge to their historic average and finish the year in line with central bank’s 9% year-end food inflation expectation.

PPI and FX Pass-through

Producer prices almost stayed flat with a 0,07% increase in the month. Factory gate inflation peaked in China back in February.  Since a significant amount of the intermediate goods are imported from China, input related price pressures have muted. Additionally lower commodity prices are helping producers combined with a stable currency (Figures 3 and 4). Lira volatility has came down to 11,5% recently. Factors that pushed inflation do double digits (taxes, energy and currency) are phasing out as foreseen, conditions are getting ripe for a dis-inflation trend next year.