UPDATE - Turkey's annual inflation falls steeply in January

UPDATE WITH QUOTES FROM ANALYST, BACKGROUND

By Muhammed Ali Gurtas

ANKARA (AA) - Consumer prices in Turkey rose 10.35 percent in January, year-on-year, marking a 1.57 percentage point decrease compared with the figure in the previous month, according to the Turkish Statistical Institute (TurkStat) Monday.

The January figure was down from 11.92 percent in December 2017, standing at below expectations.

On Friday, Anadolu Agency’s Finance Desk survey of 17 economists predicted an annual inflation of 10.72 percent for January and an average 1.36 percent monthly increase in consumer prices.

The economists expected year-end inflation of 9.49 percent -- with the highest forecast at 8.70 percent and the lowest at 12.10 percent.

On a yearly basis, the highest inflation was seen in transportation prices last month -- up 16.02 percent -- and furnishing and household equipment with 13.49 percent.

"Clothing and footwear with 12.63 percent; hotels, cafes and restaurants with 11.42 percent; and miscellaneous goods and services with 11.38 percent were the other main groups where high annual increases [were] realized," TurkStat said.

Last month, change in the consumer price index (CPI) was a 1.02 percent increase on a monthly basis -- a climb from 0.69 percent in December 2017 -- official data showed, while the highest monthly increase was 2.96 percent in miscellaneous goods and services.

"In January 2018, the indices rose for furnishing and household equipment 2.44 percent, for health 2.42 percent, for housing 2.34 percent and for food and non-alcoholic beverages 1.67 percent," the institute said.

TurkStat noted the highest monthly decrease was in clothing and footwear with 6.02 percent decline; decrease was also seen in communication by 0.99 percent among the main expenditure groups.

Erol Gurcan, investment advisory manager at Gedik Investment, said the data from January is potentially positive for short and mid-term inflation and economic outlook, while the positive base effect was the main reason of the sharp decrease in the CPI, year-on-year.

"On the other hand, the core CPI indicators remained at high levels between 12.2 and 12.3 percent," Gurcan said.

- Turkish lira assets support

"These conditions limited the positive effects of the data, so the market’s first reaction to the data was neutral.

"But, flattening of the core indicators after the deterioration in recent months is a positive signal for the short and mid-term inflation."

He added the limited improvement of the CPI could continue for a few months and a high, single-digit CPI level still could be possible in the first half of 2018.

"We expect the CPI will be mostly at low double-digit levels until the fourth quarter of 2018, then it started to fit the single digit levels," he added.

Keeping estimation of the CPI to stand between 8.8 and 9.2 percent at the end of 2018, Gurcan said we believe Turkish lira assets will be supported in short and mid-term if the Central Bank keeps its tight stance in monetary policy, independent of base effects and temporary factors like it said it would earlier.

The January figure was at the lowest level during the last six months. Last year, the highest annual rise in consumer prices was recorded in November with 12.98 percent, also the highest level since 2005.

In 2017, the lowest annual inflation was seen in January with 9.22 percent, while the minimum rise in consumer prices in 13 years from 2005 to 2017 was seen in March 2011, with 3.99 percent.

The Central Bank announced last month that it raised Turkey's year-end inflation forecast from 7 percent to 7.9 percent under a tight monetary policy stance.

The Central Bank expects the inflation rate would fluctuate between 6.5 percent and 9.3 percent through to the end of 2018, and the figure would stabilize at around 5 percent in the medium term.

As noted in the country's medium-term program introduced last September, inflation is targeted to converge to 5 percent through the end of 2020 by maintaining anti-inflationary monetary policy and fiscal discipline, "with the purpose of achieving high growth rates in the future, and increasing quality of growth".

Turkey's economy expanded 5.3 percent in the first quarter and 5.4 percent in the second quarter of 2017. In the third quarter, Turkey’s economy became the fastest-growing among G20 countries, showing double-digit (11.1 percent) growth performance.