March inflation below expectations
monthly inflation came in at IN MARCH,
3.16%, below expectations and the lowest level since the beginning of the year. According to the Reuters survey, market expectations were for CPI inflation to rise by 3.50% monthly in March. Thus, annual CPI inflation rose to 68.50%. In March, the domestic producer price index also recorded the mildest monthly increase of the last three months, with 3.29%, while annual PPI inflation was realized as 51.47%.
The slowdown in monthly inflation in March is a positive development after the higher-than-expected monthly inflation in January and February. Economic activity will cool down a bit more in April due to the interest rate hike and the increase in the default interest rates in the last month. Among the variables affecting inflation, the most difficult to predict is the course of the exchange rate and oil prices. Global developments and the effects of the steps taken at home weaken the upward expectations for the exchange rate. On the other hand, energy prices tend to move upwards. If oil prices remain calm, the expected decline in inflation from July onwards may be realized much faster than expected.
THE U.S. ECONOMY MORE RESILIENT THAN PREDICTED
The U.S. ISM manufacturing index, also known as the Purchasing Managers’ index (PMI), rose by 2.5 points from a month ago to 50.3 in March, exceeding expectations. Thus, manufacturing activity in the country expanded for the first time after 16 consecutive months of contraction. The robust ISM data led to expectations that the Fed’s interest rate cuts may be realized later than expected.
The ADP National Employment Report showed that private-sector employment rose by 184,000 in March, above market expectations. The release measures the monthly change in non-farm private employment based on the payroll data of approximately 400,000 U.S. businesses. Economists participating in the Bloomberg survey expected the increase to be 150,000. The data announced as 140,000 in February was revised to 155,000. All these data showed that in March, U.S. companies posted the highest employment growth since July 2023, indicating a strong demand for labor.
RATE CUT EXPECTATIONS STRENGTHEN IN THE EUROZONE
Annual inflation in the Eurozone, 2.6% in February, fell to 2.4% in March. CPI increased by 0.8% from a month ago in March. Market expectations were for annual inflation in the Eurozone to be 2.5% in March.
Inflation in March was 2.3% in Germany, 2.4% in France, 1.3% in Italy and 3.2% in Spain. The more-than-expected slowdown in
inflation strengthened the possibility of the European Central Bank cutting interest rates in June.
OPERATING CONDITIONS IN THE MANUFACTURE SECTOR UNCHANGED
According to the data released by the Istanbul Chamber of Industry (ISO), manufacturing PMI realized at 50.0 in March, indicating that operating conditions remained unchanged. The subitems of the index showed that production increased slightly in March, while the slowdown in new orders was realized at the lowest level of the last nine months. The depreciation in TRY continued to be the main factor pushing up input prices in the sector, while the increase in delivery times continued for the third month in a row due to geopolitical developments.
NO MAJOR ECONOMIC DATA IN THE HOLIDAY WEEK
Due to the Ramadan Feast, there are no major economic data releases in Turkey this week except for the February industrial production index on Monday morning. The tourism sector had a good period in terms of foreign tourists in the first two months of the year. However, this year, domestic tourism may need to catch up to previous years due to the slowdown in demand.
The passenger car and light commercial vehicles (LCV) sales rose by 5.7% to 109,828 units in March, year-overyear, according to the Automotive Distributors and Mobility Association (ODMD). The passenger car sales surged 9.9% to 87,071 units, while the LCV sales dropped by 7.9% to 22,757 units in the same period. Although the monthly sales remained below the forecasts due to difficulties in access to loans, the passenger car and light commercial vehicle sales hit an all-time high for March and broke a historic record quarterly. Sector representatives interpreted the contraction in the LCV market as a sign of an economic slowdown. “Passenger car sales may also start decreasing in March. Many models will be excluded from the Special Consumption Tax (SCT) exemption as prices will increase,” said Bulent Kilicer, Senior Assistant General Manager of Honda Turkey. AYSEL YUCEL
The Istanbul Chamber of Industry (ISO) Turkey Manufacturing PMI (Purchasing Managers Index) dropped from 50.2 to the threshold of 50.0 in March compared to the previous month. The manufacturing industry production slightly rose in March when the slowdown in new orders decelerated. This development encouraged some firms to increase their production and procurement operations. Production and input purchases increased for the second consecutive month, and expansion in purchasing activities was higher in March than in February. Input and final product stocks decreased due to delays in delivery processes caused by the Red Sea Crisis. The lira devaluation determined the hike in input and raw material prices. Output slowed in the majority of the sectors, and the increase in employment remained limited last month.
SERVICES PRODUCER PRICES SKYROCKET
The Services Producer Price Index (S-PPI) jumped 83.02% in February, year-over-year, according to the Turkish Statistical Institute (TurkStat). The S-PPI increased by 2.94% in February compared to the previous month, 18.64% compared to December 2023, and 77.02% on a 12-month rolling average. The price index climbed by 76.49% in transportation and storage services, 90.16% in accommodation and food services, 87.64% in information and communication services, 76.70% in real estate services, 87.23% in professional, scientific, and technical services, and 94.52% in administrative and support services in February, compared to the same month last year. The S-PPI rose by 1.77% in transportation and storage services, 4.63% in accommodation and food services, 6.88% in information and communication services, 0.88% in real estate services, 2.01% in professional, scientific, and technical services, and 3.69% in administrative and support services in February, compared to the same month last year.
The economic confidence index rose by 1.0% from 99.0 to the threshold of 100.0 in March, compared to the previous month, according to the Turkish Statistical Institute (TurkStat). Thus, the index has reached the threshold level for the first time since June 2023. The consumer confidence index increased by 0.02% to 79.4, the real sector confidence index climbed by 1.5% to 103.5, while the services sector confidence index was up by 1.5% to 120.4 in March, month-overmonth. The confidence indices dropped by 1.0% to 113.3 in the retail trade sector and 3.6% to 88.6 in the construction industry in the same period.
HUNGER LIMIT CATCHES THE MINIMUM WAGE
The monthly food expenditure required for a healthy, balanced, and sufficient diet for a family consisting of four people (hunger limit) amounted to TRY 16,792 in March, slightly below the minimum wage of TRY 17,002, according to a survey conducted by the Confederation of Turkish Trade Unions (TURK-IS). In addition to food expenditures, the amount needed to secure the necessities of life, such as housing (electricity, water, heating, etc.), clothing,
transportation, education, health, etc. (poverty line) totaled TRY 54,700. The monthly cost of living for a single employee rose to TRY 21,831.
FOREIGN TRADE DEFICIT NOSEDIVES
Turkey’s foreign trade deficit decreased by 51% to USD 12.95bn in January-February, year-over-year, according to the Turkish Statistical Institute (TurkStat). The country’s exports totaled USD 41bn, up 8.5%, and imports dropped by 16% to USD 54bn in the same period. The foreign trade deficit fell by 44.2% to USD 6.77bn in February, compared to the same month last year. Turkey’s exports surged 13.6% to USD 21bn, and imports declined by 9.2% to USD 27.85bn in the same period. Turkey ’s foreign trade deficit amounted to USD 1.4bn in February, excluding energy products and non-monetary gold.
ISTANBUL’S INFLATION ON THE RISE
The Istanbul Wage Earners Cost of Living Index (WECLI), which indicates the movement of retail prices in Istanbul, increased by 3.93% in March compared to the previous month, according to the Istanbul Chamber of Commerce (ITO). The Wholesale Price Index, which reflects wholesale prices in the city, climbed by 3.78% in the same period. The annual hike in the Istanbul WECLI and the Wholesale Price Index reached 78.25% and 63.21%, respectively, last month.