Goodbye inflation estimates
We’ve seen the highest CPI rate this year among the new series. It was a monthly increase of 1.87 percent. This is a record for the last 16 years – the period between 2003-2018. The average inflation rate for April over this period was 0.99 percent. Just like expressing a change rate with a monthly change, it’s a must this time to note the deviation: there is an increase of almost two-fold in comparison with the previous years’ average.
Average 0.99 percent; April 1.87 percent! We have to ask ourselves, where is this heading? With a CPI increase rate of 1.87 percent in April, the inflation for January-April has already reached 4.69 percent and annual inflation sits at 10.85 percent.
Annual CPI peaked at 12.98 percent November last year and then started to decline, down to 11.92 percent in December, 10.35 percent in January, 10.26 percent in February and 10.23 percent in March. So, as you can see, the decline trend in annual inflation has also been interrupted.
Can we ma nta n 3.5 percent?
Let me tell you first what 3.5 percent means: The Central Bank revised its inflation prediction for 2018 and raised it to 8.4 percent. If we can maintain 3.5 percent quarterly inflation, we can achieve the revised inflation prediction. But in the first four months, inflation reached 4.69 percent. Is it possible to return to the 3.5 percent level? We did see that before with even lower rates but the average inflation for the last eight months of the year for 2003-2017 is 5 percent. If we assume that we will see a similar rate for the remainder of this year, the annual rate will be 10 percent. But there are several risks that may push inflation above 5 percent for the last eight months of this year. The foreign exchange rate increase is steep and as we underline in the other part of this column, there is a serious inflationary pressure on the way due to that increase.
We must add here: any large scale stimulus packages provided for the coming elections may also have an impact on inflation. Therefore, it would be some kind of miracle to maintain inflation below 5 percent for the last eight months of 2018.
When pre-election expenditures, the increase seen in exchange rates and the coming increases are also included, we can say that it is impossible to close the year with single-digit inflation and we can expect an annual inflation of 11-12 percent in the best case.
The mpact on CPI w ll grow
The April average for the currency basket consisting of one dollar and one euro is 4.51 lira. The currency basket increased to 4.62 last week. We can’t really say how foreign currencies will move in the coming days but it is hard to assume a downward trend. Hence, the impact of rising foreign exchange rates and thereby the increase in import prices, in other words the impact on inflation, will become more apparent.