Turkey: Annual inflation flat in August

August inflation at 0.9% turned out to be in line with market consensus, keeping the annual figure at 11.8%. However, annual core inflation recorded an increase to 11.0% - likely reflecing the impact of exchange rate developments on energy, durables and other core goods.

In the breakdown, we see (1) flat annual goods inflation at 11.7% as benign clothing prices and favorable base effects associated with tobacco prices were offset by higher energy, core goods and food inflation, and (2) services inflation that has been in check since February remained flat at 11.8% - reflecting relatively moderate rent inflation. Catering services recorded an increase, likely reflecting the start of social life with easing pandemic restrictions.

The Domestic Producer Price Index (D-PPI) that has been on a rapid uptrend reached 11.5% in August, from 5.5% in May. This highlights the impact of the small base of the previous year and of the weak currency. The data implies higher producer-price-driven cost effects on the inflation outlook.

For the main expenditure groups:

• Other goods and services was impacted by the uptrend in gold prices and these turned out to be the biggest contributor to the headline with 30bp - raising group inflation even higher, to 27% on an annual basis.
• Transportation, on the other hand, pulled the monthly reading up by 24bp, driven by higher motor vehicle and fuel prices. As a result, inflation in this group jumped to 12.7% from a relatively low 8.8%.
• On the flipside, clothing provided a -13bp effect, though the seasonal impact remained below the long term average.
• Another negative contributor was food with, -2bp, though owing to a pick-up in unprocessed food, food inflation recorded anincrease to 13.5%.
• Among other groups, contributions to the headline floated in a 1-to-14bp range, showing relatively broad based price increases last month.