We won’t even meet MTP’s inflation estimate

It’s been just two weeks since Turkey’s medium-term program (MTP) was announced. And just like any other program, we know it includes economic estimations regarding 2017. Inflation was estimated at 9.50% in the MTP spanning 2018-20. However, September figures released by the Turkish Statistical Institute (TurkStat) showed that it is difficult to accurately estimate inflation rates even a week before their release.

According to TurkStat, consumer prices increased by 0.65% in Sep- tember. The Consumer Price Index rose by 7.29% in the first nine months, with an annual rise of 11.20%. After an increase of 7.29% in nine months, we only had elbowroom of 2% to avoid surpassing the MTP’s annual estimation of 9.50%. Theoretically it’s realizable but one of the remaining months is October: a month paramount for inflation.

According to TurkStat’s new series-based CPI calculation method, the average October inflation rate for the past 14 years is 1.92%. That is the rise allowable before hitting the MTP figure of 9.5% in just one month. And the average rise for the last quarter in the past 14 years between 2003-16 is almost 3%. According to the MTP, last quarter inflation is estimated to be around 2%. And that difference of 1% will define the year-end inflation figure. Will year-end CPI remain at 9.5% or will it increase to two-digits and even surpass 10.5%?

Annual rate will increase for two more months

We’ve seen 10.20% levels by the end of September but the upward trend will continue. Calculations based on the past 14 years indicate that the annual rate increase will continue for two more months. The annual rate is expected to surpass 11.7% by the end of October and 12% by the end of November. Annual CPI had surpassed 12% only in July 2008 and ended as 12.06%. But the trend we see now indicates that we will see higher-than-12% inflation by the end of November.

Inflation to ease off in December

But we do expect a sharp decline in December. As we witnessed unusually fast inflation last December, that increase will be excluded in the annual calculation, and so inflation that is expected to surpass 12% by the end of November will sharply decline in December. The annual rate will become around 10.60% according to calculations based on September end realizations.

From 6.5% up to 10.60%

We started the year with a CPI target of 6.50%. But it was such a start we all could foresee that prices would be head spinning. Before there were any figures regarding 2017, in other words, even before TurkStat released figures for January, the Central Bank had revised its 2017 CPI estimates: first up to 8% and then to 8.70%. And the inflation estimation made for the MTP last week was 9.50%. But it’s highly unlikely that we have the chance to realize this. After an increase of 7.29% in the first nine months, it will only be possible if we can maintain a three-month inflation rise at/below 2.43% to remain in one-digit territory. Let’s underline that it is theoretically possible but highly improbable.