 The surprise in December’s consumer price inflation in which actual results did not match expectations was the food and non-alcoholic beverage sector, says an economist. DAILY NEWS photo, Hasan Altınışık |
Turkey’s inflation rate fell to a one-year low in December, according to the Turkish Statistics Institute, or TurkStat, making it more likely that the Central Bank will lower interest rates further.
Consumer prices rose 6.4 percent from a year ago, after increasing 7.3 percent in November, the statistics office said on its website Monday, adding that the producer prices index rose by 8.87 percent over the same period.
The inflation in 2010 was below the government’s target, said Ali Babacan, deputy prime minister and state minister responsible for the economy.
“Turkey exceeded its growth target in 2010 with a lower inflation than the target,” he said Monday, speaking on local broadcaster Bloomberg HT. “Achieving both in the same year is a case that will be recorded in economic literature.”
The rise in meat and vegetable prices affected the country’s annual inflation rate negatively, Babacan said.
The estimation of markets was around 7 percent, Anatolia news agency reported.
A December survey by the Central Bank estimated that 2010 inflation in Turkey would stand at 7.23 percent. The government’s medium-term program, a schedule by the government announced earlier in 2010 to replace a possible fiscal rule, forecast the inflation rate at 7.5 percent.
Economists expected an increase of 6.8 percent, according to the median of five estimates in a Bloomberg News survey. Prices fell 0.3 percent from a month ago. Producer prices rose by 0.31 percent, according to TurkStat data.
The Central Bank reduced its benchmark interest rate to a historic low of 6.5 percent on Dec. 16, seeking to deter short-term inflows of foreign currency that might strengthen the Turkish Lira and hurt exports. At the same meeting, the bank also sought to slow consumer lending by increasing the amount lenders have to set aside against each loan.
“We expect to see the same policy mix with the bank in the coming months,” Hakan Aklar, chief economist in Istanbul for Ak Investment wrote in an e-mailed report before the release. “Declining inflation will help the Central Bank to further cut policy rates.”
He expects inflation to slow to 5.5 percent in the first three months of this year.
Gov. Durmus Yılmaz is predicting that inflation will slow to 5.4 percent by the end of 2011, which is below the 5.5-percent target. The bank next meets to set the benchmark rate on Jan. 20. Fresh steps to rein in consumer lending are likely this month, daily Vatan reported Sunday, citing Babacan.
“The bank is trying to make policy looser externally to discourage speculative inflows while tightening from the domestic perspective,” İnan Demir, chief economist at Finansbank, said in a telephone interview. “It would be difficult for the bank to convince markets of the need for it if inflation were increasing.”
Alcoholic drinks top the list
Alcoholic drinks topped TurkStat’s list of rises in consumer prices with 24.66 percent in December, compared with the same month of 2009.
Accommodation and restaurant prices increased by 9.76 percent, food and non-alcoholic drinks increased by 7.02 percent and transportation increased by 6.78 percent over the same period.
The surprise in the December consumer prices inflation that diverted the expectations from the actual results was the food and non-alcoholic beverages sector, which posted a 2.66-percent month-on-month drop to bring the annual food price inflation to 7.02 percent after reaching 17.08 percent in October, said Güldem Atabay, chief economist at Ekspres Invest in an announcement to investors.
“The breakdown again says that much of the decline in the food prices stems from vegetable prices, accounting for a reverse from extraordinary price hikes staged in earlier months of 2010,” Atabay said.
“Even if this time trends in food prices are helping the Central Bank meet its inflation target for 2010, the continuation of volatility could as well quickly reverse the trend in the coming months depending of production and weather conditions,” Atabay said. “Thus, as was the case in 2010, targeting the headline inflation with food prices having a weight at 28 percent in total can sometimes create a credibility gap for the Central Bank and thus should be cautioned for.”
Food prices were a factor in the low rate of inflation, said Banu Kıvcı Tokalı, a deputy general manager at Destek Menkul Değerler, agreeing Atabay.
“We can observe that the fall in raw food prices continued in December. A total of a 10-percent decrease was realized in the last two months,” she said, noting that the 31.3-percent increase in October fell to 8.7 percent by the end of the year.
On the other hand, the rise in energy prices negatively affected the total inflation rate, she said. The month-on-month increase in December was 3 percent, lifting the year-on-year figure to 10 percent. “Considering the global trend in oil prices, we can forecast that this pressure will continue in the upcoming days.”
The prices for 74 items in TurkStat’s 446-item index did not change as 225 items increased and the remaining 147 decreased.
Contrary to the fall in the annual headline inflation, the core indicators rose slightly, Fortis Turkey said in a research note.
“The annual price change of Central Bank’s favorite core indicator [excluding food, energy, gold, alcoholic beverages and tobacco], namely the ‘core-I’ index, edged up to 3 percent from the preceding month’s historical low of 2.5 percent,” the statement said. “In seasonally adjusted terms, according to our calculations, ‘core-I’ increased by 0.5 percent month on month, which is the highest point of the last nine months.”
The consumer prices inflation once again came in significantly lower than expectations, thanks to the steep decline in food prices, the bank said.
“Against this backdrop, there was a slight increase in the core indicators and the seasonally adjusted figures. Even though it is too early yet to talk about price pressures, this issue may become more important if the core indicators remain on an upward pattern going forward. We anticipate the consumer price index to scale down to around 4 percent in the next two months and we envision that the Central Bank will feel more comfortable in further cutting the policy rate on the back of a sharp fall in the index,” it said.
Expansion
Turkey’s gross domestic product grew 5.5 percent in the third quarter of the year from the same period a year ago, following a 10.2-percent jump in the three months through June.
The economic expansion in 2010 probably exceeded the government’s 6.8-percent forecast and was among the fastest in Europe, Babacan said Dec. 10. The economy contracted 4.7 percent in 2009.
Domestic demand, driven by record-low interest rates, is fueling the expansion even while Turkish export markets in Europe are stagnant. The current-account gap widened to $40.8 billion, or about 5.6 percent of gross domestic production, in the 12 months to October as imports surged and export growth eased.
Consumer prices rose 6.4 percent from a year ago, after increasing 7.3 percent in November, the statistics office said on its website Monday, adding that the producer prices index rose by 8.87 percent over the same period.
The inflation in 2010 was below the government’s target, said Ali Babacan, deputy prime minister and state minister responsible for the economy.
“Turkey exceeded its growth target in 2010 with a lower inflation than the target,” he said Monday, speaking on local broadcaster Bloomberg HT. “Achieving both in the same year is a case that will be recorded in economic literature.”
The rise in meat and vegetable prices affected the country’s annual inflation rate negatively, Babacan said.
The estimation of markets was around 7 percent, Anatolia news agency reported.
A December survey by the Central Bank estimated that 2010 inflation in Turkey would stand at 7.23 percent. The government’s medium-term program, a schedule by the government announced earlier in 2010 to replace a possible fiscal rule, forecast the inflation rate at 7.5 percent.
Economists expected an increase of 6.8 percent, according to the median of five estimates in a Bloomberg News survey. Prices fell 0.3 percent from a month ago. Producer prices rose by 0.31 percent, according to TurkStat data.
The Central Bank reduced its benchmark interest rate to a historic low of 6.5 percent on Dec. 16, seeking to deter short-term inflows of foreign currency that might strengthen the Turkish Lira and hurt exports. At the same meeting, the bank also sought to slow consumer lending by increasing the amount lenders have to set aside against each loan.
“We expect to see the same policy mix with the bank in the coming months,” Hakan Aklar, chief economist in Istanbul for Ak Investment wrote in an e-mailed report before the release. “Declining inflation will help the Central Bank to further cut policy rates.”
He expects inflation to slow to 5.5 percent in the first three months of this year.
Gov. Durmus Yılmaz is predicting that inflation will slow to 5.4 percent by the end of 2011, which is below the 5.5-percent target. The bank next meets to set the benchmark rate on Jan. 20. Fresh steps to rein in consumer lending are likely this month, daily Vatan reported Sunday, citing Babacan.
“The bank is trying to make policy looser externally to discourage speculative inflows while tightening from the domestic perspective,” İnan Demir, chief economist at Finansbank, said in a telephone interview. “It would be difficult for the bank to convince markets of the need for it if inflation were increasing.”
Alcoholic drinks top the list
Alcoholic drinks topped TurkStat’s list of rises in consumer prices with 24.66 percent in December, compared with the same month of 2009.
Accommodation and restaurant prices increased by 9.76 percent, food and non-alcoholic drinks increased by 7.02 percent and transportation increased by 6.78 percent over the same period.
The surprise in the December consumer prices inflation that diverted the expectations from the actual results was the food and non-alcoholic beverages sector, which posted a 2.66-percent month-on-month drop to bring the annual food price inflation to 7.02 percent after reaching 17.08 percent in October, said Güldem Atabay, chief economist at Ekspres Invest in an announcement to investors.
“The breakdown again says that much of the decline in the food prices stems from vegetable prices, accounting for a reverse from extraordinary price hikes staged in earlier months of 2010,” Atabay said.
“Even if this time trends in food prices are helping the Central Bank meet its inflation target for 2010, the continuation of volatility could as well quickly reverse the trend in the coming months depending of production and weather conditions,” Atabay said. “Thus, as was the case in 2010, targeting the headline inflation with food prices having a weight at 28 percent in total can sometimes create a credibility gap for the Central Bank and thus should be cautioned for.”
Food prices were a factor in the low rate of inflation, said Banu Kıvcı Tokalı, a deputy general manager at Destek Menkul Değerler, agreeing Atabay.
“We can observe that the fall in raw food prices continued in December. A total of a 10-percent decrease was realized in the last two months,” she said, noting that the 31.3-percent increase in October fell to 8.7 percent by the end of the year.
On the other hand, the rise in energy prices negatively affected the total inflation rate, she said. The month-on-month increase in December was 3 percent, lifting the year-on-year figure to 10 percent. “Considering the global trend in oil prices, we can forecast that this pressure will continue in the upcoming days.”
The prices for 74 items in TurkStat’s 446-item index did not change as 225 items increased and the remaining 147 decreased.
Contrary to the fall in the annual headline inflation, the core indicators rose slightly, Fortis Turkey said in a research note.
“The annual price change of Central Bank’s favorite core indicator [excluding food, energy, gold, alcoholic beverages and tobacco], namely the ‘core-I’ index, edged up to 3 percent from the preceding month’s historical low of 2.5 percent,” the statement said. “In seasonally adjusted terms, according to our calculations, ‘core-I’ increased by 0.5 percent month on month, which is the highest point of the last nine months.”
The consumer prices inflation once again came in significantly lower than expectations, thanks to the steep decline in food prices, the bank said.
“Against this backdrop, there was a slight increase in the core indicators and the seasonally adjusted figures. Even though it is too early yet to talk about price pressures, this issue may become more important if the core indicators remain on an upward pattern going forward. We anticipate the consumer price index to scale down to around 4 percent in the next two months and we envision that the Central Bank will feel more comfortable in further cutting the policy rate on the back of a sharp fall in the index,” it said.
Expansion
Turkey’s gross domestic product grew 5.5 percent in the third quarter of the year from the same period a year ago, following a 10.2-percent jump in the three months through June.
The economic expansion in 2010 probably exceeded the government’s 6.8-percent forecast and was among the fastest in Europe, Babacan said Dec. 10. The economy contracted 4.7 percent in 2009.
Domestic demand, driven by record-low interest rates, is fueling the expansion even while Turkish export markets in Europe are stagnant. The current-account gap widened to $40.8 billion, or about 5.6 percent of gross domestic production, in the 12 months to October as imports surged and export growth eased.
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