Turkey’s Inflation Rate Dropped to One-Year Low in October

Turkey’s inflation rate fell to the lowest in 11 months as a slowing economy outweighed the impact of government price increases on gas and electricity.

Inflation slowed to 7.8 percent from 9.2 percent the month before, the statistics office in Ankara said on its website today. The median forecast of 10 economists in a Bloomberg survey was 8 percent. Prices rose 2 percent in the month.

The government increased charges on cars, energy and alcohol in September and early October, as it seeks to plug a widening budget deficit. Inflation slowed in October even after those increases, as demand eased and year-earlier price increases dropped out of the annual rate.

“Core inflation is low and expectations are under control,” Hakan Aklar, an economist at AK Investment, said by phone from Istanbul. “We expect the central bank to continue their current monetary policy, meaning they will keep the average cost of funding to the banking sector low.”

Core inflation, which strips out volatile prices such as food and energy, eased to 6.1 percent, the lowest since July last year, from 6.7 percent.

Turkish policy makers have been divided over whether to prioritize growth or inflation, with Prime Minister Recep Tayyip Erdogan and Economy Minister Zafer Caglayan arguing that interest rates should be lower to spur the economy. The central bank has pushed borrowing costs close to the bottom of its interest-rate corridor in recent weeks.

Fitch Upgrade

The central bank on Oct. 24 increased its forecast for year-end inflation to 7.4 percent from 6.2 percent, citing higher oil prices and taxes. Economic growth will slow to about 3 percent this year, down from 8.5 percent in 2011, according to economists surveyed by Bloomberg.

Yields on Turkey’s benchmark two-year bonds, which were initially little changed after the inflation data, plunged when Fitch Ratings awarded Turkey its first investment grade since 2004. They were trading at 6.94 percent, close to a record low, at 4:30 p.m. in Istanbul. The lira strengthened 0.6 percent to 1.7824 per dollar, the highest in almost two months.

To contact the reporter on this story: David Neylan in Ankara at dneylan1@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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