A never ending story

► I don’t see how inflation will fall. It may climb to 18%, and then maybe recede a bit but it will unlikely fall below 15%. PPI is so high and pass-through is still so strong that unless demand collapses significantly, lower inflation is an elusive dream. A new wave of price hikes is around the corner.

► This time around it originates from global supply chains. Yes, import prices will possibly hit hard in the coming 2-6 months. In fact, we do see a tellingly large difference between producer and consumer prices.

► CPI stands at 16.19% annually wheras D-PPI is at 31.2%. Admittedly this is one of the largest distances between those two, ever.

► The C-core signals stickiness. If the core is at 16.9%, the head-on is at 16.2%, and there is accumulated price hikes on the cost, i.e. D-PPI side, the only temporary remedy to prevent inflation from a runaway course is high interest rates. This means the pass-through is alive and well.

► It won’t die off because both exchange rate volatility and lira depreciation never come to a full stop. Cost-push inflation is already on the rise and it is coming up real fast.

► This is so because the latest data reveal consumer durable prices haven’t yet responded to the recent lira weakness. Anecdotal evidence suggests that car sales can be brought forward because people expecet large price increases therein.

► Hence, inflation isn’t falling. In fact it risks of going up by a further 2-3% before equilibrating around 15%. But 15% ‘official’ CPI means the ‘perceived’ CPI at real market prices is above 25%.

► All opinion polls point to that: people think inflation is much higher. Given that the dangerously awaiting potential inflation can jumpstart actual inflation, interest rates can’t be cut. I don’t expect a cut soon.