In­fla­tion: End of the fall

Dünya Executive - - DATA -

► The fall is mainly due to base ef­fects, which im­plies (a) de­mand is still weak; (b) the ex­change rate pass-through is over.

► Food prices are a big help too. Last year at about this time they were a hin­drance. Now they are both low and the fall is dras­tic, from 27.7 per­cent an­nu­ally to 9.52 per­cent an­nu­ally in Septem­ber. Month-on­month there is a 0.60 points de­crease.

► This is so much so that de­spite price hikes in nat­u­ral gas and ur­ban pub­lic trans­porta­tion, base ef­fects dom­i­nated, and an­nual CPI fell to 9.26 per­cent. I was ex­pect­ing some­thing like 9.5-9.8 per­cent. Well, this is unim­por­tant, though.

► Unim­por­tant be­cause the di­rec­tion of the CPI is now up­wards, pos­si­bly to­wards 11.7-12.3 per­cent by the end of the year.

► Fur­ther­more, on a 12-month ba­sis, I am not con­vinced – nei­ther is any­one else, I think - that a fur­ther drop into the sin­gle-digit ter­ri­tory is pos­si­ble. After all, the CBRT in­fla­tion ex­pec­ta­tions sur­vey 12-month fore­cast stands at 12.21 per­cent cur­rently. It looks about right, bar­ring any shock.

► If there is some strength in con­sumer de­mand, in­fla­tion will rise a bit. If money print­ing is the way to ad­dress ris­ing pub­lic deficit is­sues, in­fla­tion will rise (more than) a bit. If the ex­change rate de­pre­ci­ates, yes it will head north again. If oil prices don’t re­main sub­dued, yes PPI will rise and put pres­sure on CPI anew. If… The best out­come looks like 11-12 per­cent CPI 12 months from now.

► Once again, the world is about to be busy with re­ces­sion-omics, and this is a chance be­cause Ankara wants to in­cen­tivize about every sec­tor, hous­ing and au­to­mo­tive in the first place. But all en­vi­sioned, old school in­cen­tive schemes have in­fla­tion­ary con­se­quences.

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