February CPI served up a pleasant surprise. Will the downtrend continue?
1 Low CPI was a surprise
Consumer prices were expected to increase nearly by one percent in February. However, the actual figure was well below the estimates at 0.16 percent. Thus, annual CPI fell to 19.67 percent. A level of 20 percent is considered a surprise, a pleasant surprise of course.
2 High increase in food group
The food and non-alcoholic beverages group experienced an increase of 0.90 percent. Although this increase is well below the 6.43 percent rate in January, it should not be forgotten that there was an aggressive fight against the rise in fruit and vegetable prices in February. Therefore, the 0.90 percent increase is still high.
3 Municipal sales points had little impact
Regarding February inflation, there is no direct effect from municipal truck sales because TurkStat did not include these prices in its calculations. We’ve written about this several times before. These sales points did not directly affect prices but I wonder if there was a significant indirect effect. The answer seems to be no. The low prices in these sales points have forced market chains to cut prices temporarily. However, when we look at the prices of the products that are subject to these s points, we see that the effect is very limited.
4 Prices are far above the December level
The prices of products that are subject to municipal sale points, including tomatoes, peppers, eggplants, potatoes and onions, which have come to symbolize the broader food items category, declined in February but remain much higher than December. Prices used by TurkStat in the CPI calculation for February for peppers were 73 percent higher compared to December, eggplants were 68 percent higher, cucumbers 64 percent, tomatoes 29 percent, potatoes 26 percent and onions 8 percent.
5 Municipal sales points prices were not calculated
Prices of products such as tomatoes, peppers, eggplants and onions, which are considered in the CPI calculation, show that the prices have not been compiled from the municipal sales points. There is a huge difference between the prices used in the CPI and the prices at these sales points.
6 The effects of clothing and shoes
Suggesting these municipal sales points have prevented a rise in prices does not reflect the truth. The expenditure group which kept the CPI increase in February so low was clothing and footwear. Prices in this group fell by 4.81 percent and this decline was reflected in the CPI as negative 0.32 points. The 0.90 percent increase in food inflation was reflected in the CPI as 0.22 points. The total increase of 0.16 percent was due to the effects of other items.
7 The base effect
Municipal sales points will lose even its minor effects over time. However, that may change if TurkStat starts to factor in prices from these sales points. But that would destroy TurkStat’s reputation. In fact, there is no need for such a step. The base effect will accelerate the decline in annual prices, especially starting from April.
8 Annual rate will drop
High CPI growth was seen until October last year so its decline on an annual basis should accelerate, especially compared to the 2.61 percent in June, 2.30 percent in August, and 6.30 percent in September. When we reach the end of September, a significant decrease will be seen as we will have passed a high point in the CPI calculations. But as there is almost no chance of seeing negative rates in November and December this year, like last year, the annual trend is expected to increase again.
9 CPI will not go below 15 percent
The estimated CPI inflation for 2018 is 15.9 percent. It would not be surprising if the record rate of last year is normalized and the annual rate decreases rapidly and goes below 15 percent at the end of the year.
10 Election uncertainty
A series of new regulations will kick in after the elections. What will happen when the tax cuts implemented last year and extended until the end of March are abolished? The result is obvious but to what extent it will affect CPI is unpredictable. At the moment, it is still unclear whether there will be another extension. The results of March 31 elections and how results will affect public opinion will determine the course of inflation.