Turkey: August inflation as expected

Consumer prices that have already reached the highest since the inception of the current series were up by 2.3% in August, almost aligned with the median market consensus. Annual inflation jumped to 17.9% from 15.39% a month ago, contributed by the continuing deterioration in goods inflation, especially energy and core goods gave the ongoing impact of exchange rate pass-through and administrative adjustment and continuing rise in sticky services inflation with across the board pressure in sub-items including rent.

Annual core inflation also soared this month from 15.1% in July to 17.2% in August, while the rise was broad-based, with all major categories registering increases as FX pass-through continues to feed into prices.

The Domestic Producer Price Index (D-PPI), on the other hand, was up by 6.6% last month, the highest monthly increase since 2003, showing persisting and strengthening producer-price-driven cost pressures. Annual inflation jumped to 32.1% from 25% a month ago. The PPI that has been on an uptrend since February show current widespread pricing pressures in almost all groups.

• Transportation provided an 80bp contribution to the monthly reading mainly due to the impact of exchange rate developments. It should also be noted that a price compensation system, guaranteeing maximum diesel and gas oil prices to users at the price levels prevailing in mid-May is put in place with an objective of offsetting any changes in international oil prices and the exchange rate by symmetrical cuts in special oil taxes. Last month, the government allowed some of the accumulated price increases in recent months to be reflected in gasoline prices to ease some of the fiscal burdens on that in return pushed already high transportation inflation further up.
• Other strong drivers are utilities (56bp), home appliances (36bp) and dining and lodging (14bp) showing a combination of impacts from exchange rate developments, seasonality, inflation indexation, administrative price adjustments etc.
• Clothing stood out as the major group that pulled the headline down (by -11bp) because of seasonality, though the monthly figure in this group is the highest of August readings since the start of the inflation series with -1.6%.