Turkey Year-End Inflation Highest Since 2011 on Food Prices

  • December inflation at 8.81% exceeds central bank 7.9% Forecast
  • Minimum wage increase announced last week seen lifting prices

Turkey’s consumer price inflation accelerated more than estimated in December and reached the highest year-end level since 2011, as the central bank missed its inflation target for a fifth year.

The annual inflation rate was 8.81 percent last month, according to data published by Turkey’s statistics office on Monday. Economists had estimated the rate would accelerate to 8.5 percent, according to a Bloomberg survey. Central bank Governor Erdem Basci revised his year-end inflation forecast to 7.9 percent in October from 6.9 percent in July, citing a weakening lira.

The inflation surge was mainly due to a 10.87 percent annual rise in food prices, according to Eda Onder Ozturk, an analyst at Istanbul-based ALB Menkul Degerler, which had the most accurate forecast in the Bloomberg survey. The government’s decision to raise electricity prices as well as taxes on tobacco and alcohol means price gains are unlikely to slow down soon, she said. Turkey also announced a 30 percent increase to the minimum wage last week.

“Consumer price inflation will remain anchored around 9 percent during the first quarter of this year,” Ozturk said by phone after the release. “There will be a further impact from the rising minimum wage in the private sector.”

The higher minimum wage may add as much as 2.2 percentage points to inflation, Deputy Prime Minister Mehmet Simsek said in a televised interview on NTV on Monday. Increases to power prices and taxes may add as much as 0.7 percentage point to the headline inflation, said Erkin Isik, a strategist in Istanbul at Turk Ekonomi Bankasi AS, the local unit of BNP Paribas SA.

The lira weakened after the inflation report and was trading 1 percent lower at 2.9518 per dollar at 3:38 p.m. in Istanbul. The currency fell 20 percent against the dollar last year, according to data compiled by Bloomberg.

Today’s worse-than-forecast data and deteriorating expectations will probably not have a major impact on the central bank’s next interest rate decision scheduled for Jan. 19, Morgan Stanley’s Istanbul-based economist Ercan Erguzel said in an e-mailed report on Monday.

Turkey’s central bank has maintained a 5 percent inflation target for the past four years. In 2011, the target was 5.5 percent.

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