Turkey’s central bank missed its annual inflation target for a third year, as consumer prices rose 7.4 percent in the 12 months through December.
Inflation accelerated from 7.32 percent in November, the state statistics office in Ankara said today. The median in a Bloomberg survey of six economists was 7.26 percent.
Food prices and a weakening lira kept inflation above the 5 percent target, the central bank says. It expects core inflation indicators to remain above the target “for a while” as the headline rate declines, according to minutes of the bank’s Dec. 17 interest-rates meeting, where benchmark borrowing costs were kept unchanged.
“Food prices didn’t help inflation in 2013,” Nihan Ziya-Erdem, an economist at Turkiye Garanti Bankasi AS in Istanbul, said by phone yesterday. “Inflation remains elevated due to the weak lira and recovery in domestic demand.” The lira slid 17 percent against the dollar last year.
The prices of liquid petroleum gas, mainly used for domestic cooking and heating, increased by 12.1 percent in December from a month earlier, the state statistics office said. Unprocessed food items also saw some of the highest price increases last month, according to official data.
The government increased a special consumption tax, or OTV, on alcoholic beverages, tobacco, cars and mobile phones effective Jan. 1, according to Turkey’s official gazette. The hike in taxes will increase annual inflation in 2014 by an additional 0.9 percentage point, according to an e-mailed note by AK Invest which raised its 2014 inflation estimates to 8.5 percent from 6.5 percent previously.
The lira gained 0.1 percent to 2.1678 per dollar at 12:09 p.m. in Istanbul today, trimming losses to 6.1 percent since the U.S. Federal Reserve said Dec. 18 that it would reduce monthly bond purchases, the worst performance among all emerging market currencies according to data compiled by Bloomberg.
The central bank will have to write an open letter to the government on factors that affected inflation because price increases were above the so-called 2-percentage-points margin of uncertainty. It kept its three benchmark rates unchanged at its last monetary committee meeting on Dec. 17, saying the current monetary policy stance is sufficient to fight inflation.
“In all, inflation outlook seems to be deteriorating amid recent news flow,” chief economist Haluk Burumcekci and Asli Savranoglu Seren at Burgan Securities in Istanbul, said in an e-mailed report today. “We think a hike in the upper band of the corridor of 7.75 percent would be an appropriate move to anchor both the lira and inflation expectations.”