Turkish inflation figures remain within reach

Sep 11, 2002 02:00 AM

August inflation figures indicated that the Turkish government's year-end target of 35 % remains within reach, although monthly inflation rates are expected to pick up in the rest of the year, analysts said. A 2.1 % month-on-month wholesale prices index (WPI) of 2.1 % and consumer prices index (CPI) were broadly in line with market expectations and brought down annual inflation to 43.9 % from 45.9 % in July and 40.2 % from 41.3 % respectively on the two indexes.
"Central bank's year-on-year CPI-inflation target of 35 % for December 2002 is comfortably within reach. After adjusting for seasonal effects, the CPI rose about 2.5 % month-on-month in August, reflecting the pass-through from the depreciation of the lira driven by political uncertainty," Credit Suisse First Boston economist Berna Bayazitoglu said.

Wholesale price trends appeared constrained by a seasonally modest 0.9 % rise in agriculture inflation, while consumer prices were driven by price increases in certain services sectors, particularly in transport, health and education. Private sector manufacturing prices, i.e. the proxy for core inflation, rose by an average 2.3 % on the year in August, somewhat moderately when compared with expectations.
Some 20 % depreciation in the value of the lira against the currency basket of $ 1 and EUR 0.77 since May had led analysts to estimate a higher core inflation figure, but a 2 % appreciation in August seems to have counteracted the effect.
"We think that the relative slowdown in economic activity in August caused a lower than expected core inflation. Similarly the recent price hikes in the public sector did not have negative effect on the core inflation," investment firm HC Istanbul chief economist Baturalp Candemir said.

The eight-month inflation added up to 18 % on the WPI and 16.1 % on the CPI, against the government's targets of 31 % and 35 % respectively. "This implies that if the average of monthly inflation figures in the rest of the year stays below 2.6 % for WPI and 3.8 % for CPI, both targets may be hit. Although we think that end-2002 CPI target is within reach, we attribute much less probability for end-2002 WPI inflation to remain below 31 %," Candemir said.
In the coming months inflation figures should accelerate on the back of non-economic factors as well as seasonality, analysts said. Autumn is the time of the year when price hikes kick in, while political uncertainties in the period leading up to the elections and the tension over a much-anticipated US military campaign against Iraq might give a boost to price trends.

Brokerage Finansinvest economist Ahmet Orhun Akarli suggested that monthly inflation would turn out higher in September and October, as the positive impact of moderate farm prices disappears, clothing prices start kicking, the opening of schools fuels consumer spending, and rental contracts are renewed.
"Tackling inflation will be more challenging in the second half of the year, especially when political uncertainties and the threat of a possible US operation on Iraq prevail on the agenda," HC Istanbul's Candemir said.

Source: Turkish Daily News
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