Turkish inflation rises to 19.6% after rate cut

Turkey’s annual inflation rose by 19.58 per cent in September to its highest in two-and-a-half years, data showed on Monday, pushing real yields further into negative territory after the central bank surprised markets by cutting its policy rate last month.

Inflation was slightly less than expected. But it has remained in double-digits for most of the past five years and emergedas a main concern for investors and savers given political pressure for easier monetary policy.

Month-on-month, consumer prices rose 1.25 per cent in September, the Turkish Statistical Institute said, compared to a Reuters poll forecast of 1.35 per cent and an annual forecast of 19.7 per cent.

After headline inflation rose above the policy rate in August, the central bank started emphasising core “C” inflation, and later cut its key rate by 100 basis points to 18 per cent. The “C” measure also rose to 16.98 per cent in September.

The bank will likely cut rates again this month due to political pressure despite the rise in both core and headline inflation, said Jason Tuvey, senior EM economist at Capital Economics, adding core inflation was still below its June peak.

“With inflation likely to fall sharply in the final couple of months of the year and early next year, further aggressive easing lies in store,” he said, adding the lira is likely to decline sharplyas a result.

The lira’s depreciation poses upward risks to inflation due to Turkey’s heavy import bill priced in hard currencies.

The monthly rise in September’s headline inflation was driven by the education group, which rose 5.15 per cent, as schools re-opened, and the furniture group, which increased 3.33 per cent.

Food Prices

The food and non-alcoholic beverages group rose only 0.05 per cent month-on-month in September but year-over-year it was the leading group, up 28.79 per cent.

Tuvey said there were “early indications” that food price inflation had passed its peak, after driving the rise in the headline figure in recent months.

Central Bank Governor Sahap Kavcioglu said last week that pricing behaviour is expected to return to pre-pandemic conditions as normalisation progresses.