June inflation rises higher than expected to 12.6%

TURKEY’S consumer price inflation climbed higher than expected in June, according to the national statistical body Friday, after the central bank abruptly halted its easing cycle policy, citing upward pressure on prices.

June’s annual inflation rate surged to 12.62%, up from 11.39% in May, the Turkish Statistical Institute (TurkStat) said. Month-on-month, consumer prices rose 1.13%. Economists polled by Reuters expected the annual inflation to come in at 12.09% and monthly rise at 0.65%. Anadolu Agency’s (AA) survey, on the other hand, projected the annual inflation rate to increase to 12.14% and forecast a 0.70% month-on-month rise.

The producer price index rose 0.69% monthon-month in June for an annual rise of 6.17%, the data showed. Increases in food, alcohol, housing and health prices drove up the annual figure last month, as the Turkish economy began emerging from the near standstill of a coronavirus lockdown. By sector, June’s lowest annual increase in inflation was 4.84% in communications, while the highest rise was in alcoholic beverages and tobacco with 22.41%.

The data also showed that the 12-month average hike in consumer prices as of June was 11.88%.

On a monthly basis, while food and beverage prices were down by 1.6%, the largest increase was seen in the transportation sector with 4.49%.

“In June 2020, within the average prices of 418 items in the index, the average prices of 71 items decreased and the average prices of 57 items remained unchanged while the average prices of 290 items increased,” TurkStat noted.

Inflation expectations for the year-end increased slightly last month, while those for the next 12 months declined, the Central Bank of the Republic of Turkey (CBRT) said Thursday in minutes of last week’s monetary policy meeting.

The bank unexpectedly halted a nearly yearlong easing cycle last week, keeping its key interest rate unchanged at 8.25% and citing upward pressure on inflation due to the coronavirus pandemic.

The bank had cut its one-week repo rate by 1,575 basis points in nine consecutive meetings since July last year, when it stood at 24%, in a muscular bid to stimulate the economy and more recently to counter the economic downturn brought on by the outbreak. This April, the central bank revised its year-end inflation forecast to 7.4% for 2020, down from 8.2%, thanks to a cut in projections of the output gap and food inflation.

The government’s year-end inflation target is 8.5% for 2020 as laid out in the government’s new economic program announced last September.