Inflation

Dünya Executive - - DATA -

► Core C-inflation is down again, and this is the seventh month in a row. Despite temporary exchange rate volatility and level hikes, the passthroug­h has been weakening.

► Seasonally-adjusted C-core stands at around 0.5 monthly. That implies around 12 percent within 6 months.

► Because there are base effects ahead, the headon will also fall. It will fall drasticall­y in September.

► We may see 11-12 percent in early October as head-on CPI goes, only to head north again thereafter. But in the end inflation is on a declining trend.

► Non-processed food helped this time, by subtractin­g 0.3 points. Annual food inflation is still very high at 28.4 percent. Food also will be decisive in the coming months.

► Services are sticky now, but this is only to be expected. As the pass-through dies off, goods prices will be tamed first, and services should follow. This is dependent on exchange rate stability obviously.

► Summing up, we will see fluctuatio­ns in the annual unadjusted CPI in the coming months. One ought to distinguis­h elements that are important from those that are not, and the CBRT shouldn’t hurry to cut rates.

► Cutting rates would rather be counter-productive given the current financial outlook. After all, I am not sure the fall will continue after the base effects.

► However, low double-digits is a possibilit­y, and a business cycle chronology-based economic recovery may well be on its way. Only temporaril­y, and only on paper though.

► The ugly reality points to a prolonged stagnation, with low positive growth in H2 and in 2020, and a lower but rising inflation after the base effects of September and October.

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