Annual inflation may still fall to single digits

Dünya Executive - - COMMENTARY - Alaattin AKTAS Economist

The election was left behind and a classical practice came up again. Tea, sugar and diesel prices were raised. Surprised? No. We expect more. There is an expectatio­n that these hikes will continue intensivel­y and the annual CPI, which seems to be reversing, will be on the rise again.

We do not know to what extent prices will increase in the coming

period; whether the tax reduction in automotive, white goods and furniture will be extended, or if new taxes are introduced. However, the CPI on an annual basis will probably fall to single digits in September thanks to mathematic­s. Of course if there will be no unusual developmen­ts in this last three months and if there are no negative effects that will change the general course of prices.Attention to June, July and September

The only factor that will cause inflation to fall to a single digit during the year is mathematic­s! The annual rate will decline as last year’s high rates were taken out from the calculatio­n and replaced by moderate rates. It’s that simple!

A 2.61 percent increase was seen in June last year, which is unusual for June. To understand how high 2.61 percent is, it is worth rememberin­g the average June increase between 2003-2017 was negative 0.15 percent. There is no extraordin­ary price movement this June. The recent hikes after the election will not have much impact on June. Therefore, if there is an increase of around 1 percent in June, annual CPI will fall below 17 percent.

In July, last year’s rate was relatively low. Therefore, we can see that the annual CPI will rise slightly in late July compared to the end of June. In August, a sharp drop in the annual rate may be waiting for us, because last year’s August rate was 2.30, far above the average.

And the real thrill will be seen in September! The September increase does not even reach 1 percent according to the average of the last fifteen years before 2018. Yet last year’s realizatio­n was 6.30 percent. Even if the rate realizes as 2 percent, the annual rate will very likely fall to

a single digit or very close.

Single digits cannot be permanent

Annual inflation may continue to decline in October, but by the last two months of the year, the direction will turn up again, there is no escape. Because, in November and December of last year, negative rates, which are really rare, were seen. When we enter 2020, the low rates in the first months of this year will have a negative base effect this time and the annual rate will continue to rise.

Above all, we are not taking the basic steps to reduce inflation. We cannot reduce production costs, nor can we create a supply-demand balance of goods and services. Therefore, our inflation is also increasing or decreasing mainly due to the base effect.

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