Turkey’s in­fla­tion reach­ing plateau on cur­rency risks

The Star Malaysia - StarBiz - - Foreign News -

ANKARA: Turk­ish in­fla­tion prob­a­bly stalled for the first time in three months as the econ­omy emerged from coro­n­avirus re­stric­tions, but a new round of cur­rency de­pre­ci­a­tion threat­ens to set off more price pres­sures.

Faster in­creases in food costs and a re­cov­ery in en­ergy mar­kets have kept mo­men­tum be­hind con­sumer prices at a time when risks were al­ready on the rise be­cause of a weaker lira and credit stim­u­lus in Turkey.

Still, the sta­tis­ti­cal ef­fect of a high base of com­par­i­son af­ter last year’s price pickup means in­fla­tion edged down slightly in July to an an­nual 12% from 12.6% a month ear­lier, ac­cord­ing to the me­dian of 15 fore­casts in a

Bloomberg sur­vey. Turkey’s sta­tis­tics agency will re­port the data soon.

Price gains may also have mod­er­ated in July be­cause “a larger than nor­mal frac­tion of firms ad­justed their prices in June with the sig­nif­i­cant eas­ing in Covid-19 re­stric­tions at the be­gin­ning of the month,” ac­cord­ing to Gold­man Sachs Group Inc econ­o­mists.

The cen­tral bank has re­sponded by leav­ing in­ter­est rates on hold for two months and rais­ing its year-end pro­jec­tion for in­fla­tion to 8.9%.

Its out­look for 2020 is still more up­beat than any of the fore­casts com­piled by Bloomberg. When fac­tor­ing in in­fla­tion,

Turkey’s of­fi­cial bor­row­ing costs are among the low­est in the world and have been be­low zero through­out the year.

The lat­est bout of cur­rency weak­ness could ham­per ef­forts to keep in­fla­tion in check by mak­ing im­ported goods more ex­pen­sive. An at­tempt to con­tain volatil­ity in the lira by re­strict­ing for­eign in­vestors’ abil­ity to trade the cur­rency has only com­pounded a flight from Turk­ish as­sets.

The lira weak­ened al­most 2% against the dol­lar last week af­ter stay­ing within a tight trad­ing range since June, ex­tend­ing its de­cline for the year to nearly 15%. It’s also near a record low against the euro. — Bloomberg

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