Inflation high

Consumer prices hit double digits in April for third consecutiv­e month

Dünya Executive - - FRONTPAGE - by Ismet Ozkul

1 What was inflation in April?

The consumer price inflation index (CPI) was a high 1.31 percent in April. Therefore annual inflation increased 0.58 points to 11.87 percent in comparison to March. The inflation rate is 5.30 points higher than the previous year. The annual inflation is above double digits fleeting throught three months. Four-month inflation mounted the annual inflation target of 5.71 percent. The 4 month inflation is the highest inflation level in 2003-based inflation series until today.

2 What made up the lion’s share of inflation?

Alcoholic drinks and tobacco products led the way in annual inflation, with an average price increase of 21.65 percent due to tax hikes. Transporta­tion was second, with inflation of 17.94 percent. Third place was food and non-alcoholic beverage prices, which rose 15.63 percent. The biggest contributi­on to annual inflation was from food and non-alcoholic beverages, with 3.34 points. Transporta­tion contribute­d 2.88 points, alcoholic beverages and tobacco products 1.25 points, and rent and housing expenditur­es 1.1 points to the annual inflation.

3 Did the excessive increase in the price of unprocesse­d food lead to double-digit inflation?

The Central Bank and government officials often say that unprocesse­d food is one of the major reasons for Turkey’s high inflation. According to core inflation indicators, the annual inflation on unprocesse­d food is more than double headline inflation, which is 24.61 percent. At 43.38 percent, annual inflation in fresh fruits and vegetables is almost four times the headline inflation. However food prices are not only reason for double digit inflation. Inflation excluding the unprocesse­d food is also double digits with 10.35 percent.

4 What is the trend in core inflation?

The rapid increase observed in base core inflation indicators in February and March seems to have stagnated in April. The B Index annual inflation rate, which excludes unprocesse­d food, energy, alcoholic beverages and tobacco products and gold increased by 0.05 points in April and reached 9.12 percent annually. The C Index annual inflation rate, excluding energy, food and non-alcoholic beverages, alcoholic beverages and tobacco products and gold, fell by 0.04 points to 9.42 percent. The D Index annual inflation, excluding unprocesse­d food, alcoholic beverages and tobacco products, fell by 0.07 points back to 9.68 per- cent. Despite these minimal declines in the C and D indices, annual inflation was a significan­t 0.73 points and climbed to 13.2 percent. And annual inflation for services was a limited 0.23 points, but still proceeded to rise to 8.87 percent.

5 How is the rise in foreignexc­hange rates affecting inflation?

Even though the lira’s depreciati­on has slowed, it is still a factor in rising prices. The annual inflation rate of producer prices is higher than CPI, indicating that the rise in the foreign-exchange rate may continue to reflect on inflation. 6 What is the trend for the Producer Price Index (PPI)? Domestic producer prices rose by 0.28 points in April to reach 16.37 percent. Annual inflation was 4.5 points higher than consumer prices. PPI rose to 0.76 percent. And producer price inflation in the first four months of the year reached 7.19 percent. Annual inflation in producer prices has begun to rise more slowly. It stands out that the sectors with the highest annual inflation are the ones most vulnerable to increases in the foreign-exchange rate, like crude oil, petroleum products and metals.

7 How about inflation in agricultur­e?

Producer prices for agricultur­al products declined by 0.98 percent in March after declining by 1.36 percent in February. However, threemonth producer price in agricultur­al products was still at 6.96 percent, due to the 9.51 percent bounce in January. Despite the recent decline, annual producer inflation in agricultur­al products continued. Producer prices for agricultur­al products rose by 3.41 points and reached 12.7 percent in comparison with February.

8 What is the outlook for inflation?

According to the last survey by the Central Bank, the anticipati­on for year-end inflation has risen by 0.2 points compared with March, to reach 9.28 percent. The Central Bank continues to raise the year-end inflation expectatio­ns too. In the second inflation report of the year, it Centralcd the year-end inflation expectatio­n by 0.5 points and rosepercen­t. And the expectatio­n for 2018 inflation was increased by 0.4 points and to 6.4 percent. It is highly possible that the year will close with a double-digitflati­on.

9 What will influence the inflation trend in coming months?

The major factor influencin­g the upward inflation trend in the coming months will be food prices and foreign-exchange rates. Developmen­ts in domestic and foreign policy will also reflect on inflation, as they influence the foreign exchange rates. Forex rates will be shaped mainly by the decisions of the U.S. Federal Reserve, developmen­ts in global markets and the Central Bank’s policies and domestic political developmen­ts.

10 Is the Central Bank’s inflation policy sufficient?

Besides growing anticipati­on of a strong rising trend, the Central Bank overhaulin­g its own forecasts indicates that its policies to combat inflation are not sufficient. A frequent criticism by internatio­nal finance institutio­ns and analysts is that the Central Bank does not focus enough on price stability and its inflation target and is under political pressure to easily raise rates.

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