UPDATE - Annual inflation in Turkey hits 12.98 percent

UPDATES WITH DEPUTY PRIME MINISTER SIMSEK'S AND ANALYSTS' COMMENTS

By Tuba Sahin

ANKARA (AA) - Annual inflation reached 12.98 percent in November, the Turkish Statistical Institute (TurkStat) said Monday.

Prices rose 1.49 percent in October, a slowing of the 2.08 percent rate from September to October.

The transport sector showed the largest year-on-year price rise -- an 18.56 percent increase -- while clothing and footwear prices leapt 3.77 percent in November, the biggest monthly rise.

“There was no decrease in the main expenditure groups in November 2017,” TurkStat reported. “The lowest monthly increase was in alcoholic beverages and tobacco with 0.01 percent amongst the main expenditure groups.”

Annual inflation stood at 11.90 percent in October, a 9.52 percent rise since December last year.

Inflation rose steadily during 2017, from 9.22 percent in January to November’s 12.98 percent.

In September, the government’s medium-term forecast predicted a 5 percent inflation rate for 2020, down from 8.5 percent in 2016, and 9.5 percent by the end of 2017.

- Inflation to go down December onwards

Commenting on November's figures on Twitter, Deputy Prime Minister Mehmet Simsek said a persistent downward trend in inflation will likely occur from December onwards.

"We expect a downward correction in December," Simsek said.

Simsek said the government would maintain its support in order to achieve a lasting reduction of the inflation rate.

The rise was mainly due to unprocessed food prices, which appeared to be due to temporary factors, Simsek said.

Simsek stated that unprocessed food prices accounted for 0.52 percentage point of the 1.08 percentage point rise in annual inflation.

"The Food Committee has been formulating structural remedies to reduce volatility in food prices," Simsek said.

- Central Bank might increase late liquidity rate

KapitalFX Analyst Enver Erkan said the inflation rate would have a better chance to slow down in December if the Turkish lira does not lose value.

"Input costs are mainly dollar-based. Turkey needs to create its own story by establishing a local policy that supports domestic production as well as structural reforms," Erkan said.

Erkan added that he expected Turkey's Central Bank to increase its late liquidity rate, which is currently at 12.25 percent.

"It seems too low in theoretical terms. Because real interest rate is in negative levels from now on. The Central Bank could adjust this rate by increasing the late liquidity rate," Erkan said.

Muammer Komurcuoglu, an economist at IS Investment, also said he expected a retreat in headline inflation in December due to a favorable base year effect and predicted the year end inflation rate would reach 10.5 percent.

"November inflation is important for the Central Bank as it is the last reading before the Monetary Policy Committee meeting due on Dec. 14," Komurcuoglu said.

He said the bank was expected to hike the late liquidity funding rate due to a higher core inflation rate and weakened lira.

"Our initial expectation is a 100-base point hike. Yet, the final amount of the hike will be set by the path of the lira till the meeting," he said.