Turkey Inflation Unexpectedly Accelerates After Lira Decline

Turkish inflation unexpectedly accelerated in August as a weaker lira pushed up the cost of imported goods.

The inflation rate rose to 6.7 percent from 6.3 percent a month earlier, the statistics office in Ankara said today on its website. The median estimate of six economists surveyed by Bloomberg was 6.2 percent. In the month, prices rose 0.7 percent.

The lira has declined about 10 percent against the dollar in the past three months, as the central bank’s commitment to low interest rates deterred some investors. The bank cut its benchmark rate to 5.75 percent last month, and said Aug. 26 that any jump in prices stemming from the lira’s decline will likely prove temporary as the economy slows.

Lower inflation in recent months “constituted a key pillar of easy monetary policy,” said Tatha Ghose, senior emerging markets economist at Commerzbank AG in London. “Today’s data, however, highlight the adverse impact that such policy is having on inflation through its disastrous effect on the exchange rate.”

The jump in prices probably won’t deter central bank Governor Erdem Basci from cutting rates further, though a reduction this month is unlikely, Ghose said. The bank’s next interest rate meeting is on Sept. 20.

The lira fell 0.6 percent to 1.7626 per dollar at 11:15 a.m. in Istanbul. It has dropped more than 12 percent this year, the worst performer among 31 major currencies tracked by Bloomberg. Yields on two-year lira bonds dropped 4 basis points to 7.76 percent, after climbing as high as 7.92 percent immediately following the inflation data.

Import Costs

Transport costs jumped 1.9 percent in August, the statistics institute said, as the lira’s drop made fuel imports more expensive, offsetting a decline in oil prices.

The central bank’s measure of core inflation, which excludes energy, food, beverages and tobacco, rose to 6.2 percent, the highest since February 2009, from 5.4 percent.

The bank said on Aug. 26 that it’s unlikely to take action to rein in prices unless expectations of future inflation start to rise. The estimate for the inflation rate in 12 months’ time fell to 6.8 percent in the bank’s latest survey of economists and executives published Aug. 22, from 6.9 percent two weeks earlier.

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