Inflation: End of the fall
► 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.