Inflation and interest rates

Head-on CPI rose to 15.6%. The increase was widespread across sub-items, but still food inflation is the main culprit. Wholesale prices stand at 27.1% now. This is what people on the street think is the “real inflation” though. This is normal given that food inflation accounts for 0.81% of the rise, in a sense. Further to that, right or wrong but the ENAG alternative inflation measurement group reports a monthly CPI of 1.84%, well above the official 0.91%. Actually, ENAG claims the 2020 CPI stands at 36.72%.

Core inflation has also risen from 15.5% in January to 16.2% in February annually despite the nominal appreciation of the lira. However, the seasonally-adjusted 3-month average of the C-core declined a bit. This may be due to momentum and the fact that there is asymmetry in the pass-through. But, be this as it may, services inflation can be expected to increase after the re-opening.

The lagged effect of the pass-through is reflected on consumer durable prices, which in tandem with very strong e-commerce demand for such goods showcased a 34.7% annual rise in February.

Because inflation remains high, and even if we annualize from the current C-core, we come up with a slightly above 10% 2021-end estimate, there is no room for any relaxation. Actually, although an ENAG forecast adjusted policy rate would kill all businesses I suspect the current policy rate and the accompanying credit rates are high enough to kill inflation. No, and this is why we may never achieve genuinely low inflation: the way of ‘doing business’ doesn’t allow this to happen. Also, the always large F► revenue gap of the country won’t allow that.