Snap3 July 2018Updated 6 months ago

Turkey: Both headline and core inflation shoot up in June

Consumer prices came in well above consensus at 2.61%, pushing yearly inflation to 15.39%. Core inflation surged in the second quarter with the impact of FX pass through, maintaining the uptrend


Consumer price index

Consensus (1.4%)


Consumer prices went up by 2.61% in June, well above the median market consensus at 1.4%. 

Accordingly, annual inflation jumped further to 15.39% from 12.15% a month ago, contributed by across the board deterioration in goods inflation, especially unprocessed foods, while sticky services inflation showed an acceleration on an annual basis with a penetration to double-digit levels for the first time since the global crisis. Transportation services, among other things mainly drove this. Low base effects accompanied by exchange rate movements also contributed to the monthly reading.

Evolution of Annual Inflation (%)

TurkStat, ING Bank
TurkStat, ING Bank

On the other hand, the Domestic Producer Price Index (D-PPI), was up by 3.03% last month contributed in particular by food products, commodities and textiles, while annual inflation rose to 23.71%, another new peak in the current 2003=100 series, from 20.16% a month ago. 

The PPI that changed direction in February has been in an uptrend, as pricing pressures in PPI groups remained widespread with sustained increases in all groups. Persisting producer-price-driven cost pressures proved strong again in June.

In the inflation breakdown, all groups, except for clothing, were positive drivers for the monthly reading. These include:

  • The food group stood out with 139bp contribution given price hikes in unprocessed foods well above of the seasonal averages, while pressure on the processed foods also continued. Accordingly, annual inflation in this group hit 18.9% from 11% a month ago.
  • The transportation provided 47bp mainly due to the impact of exchange rate developments. Annual inflation in the group exceeded 24%, the highest among the CPI groups. Despite the government’s decision to absorb some of the price shocks from the weak currency and oil price spike via automatic tax adjustment on gasoline prices, inflationary pressures in this group have remained high.
  • Other groups provided positive contributions to the headline in the range of 2-to-17bp showing that the cost pressures from the TRY weakness and second-round effects continued to weigh on the pricing behaviour.
  • The only item that reduced the headline inflation by -8bp was a higher than expected seasonal drop in clothing, remaining below of June average in previous years under the current inflation series. This is likely attributable to softening demand conditions with the negative confidence shock from the significant TRY depreciation.

Regarding core inflation, the "C" indicator in the set (C = CPI excluding all food & beverages, energy, alcoholic drinks & tobacco, gold) recorded a 1.81% change in June, pulling annual inflation up to 14.6% (the highest reading in 2003=100 series) from 12.64%. The data shows that the FX pass-through has taken a toll and pressure on core inflation and this will remain in the near term.

Contributions to annual inflation (ppt)

TurkStat, ING Bank
TurkStat, ING Bank

Overall, June data showed further worsening in the price dynamics driven by cost factors despite softening demand conditions lately, while elevated levels of inflation and ongoing deterioration in inflationary expectations (24-month expectations likely to reach the double-digit level in the period ahead) continue to pose further risks to the pricing behaviour. 

Looking ahead, we expect inflation to further increase in the third quarter with the continuing impact of the FX pass through as well as unsupportive base effects and change direction after that until the end of this year. Though lira's performance and food price dynamics will remain as key risk factors.