A temporary respite thanks to softer food inflation

TURKEY - In Brief 05 Sep 2022 by Murat Ucer

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Consumer prices rose by a lower than expected 1.5% in August (consensus, median: 2%), which, as far as our (slightly lower than median) forecast is concerned, owed a great deal to softer (unprocessed) food inflation in the month. Twelve-month CPI rate nevertheless rose slightly further to 80.2%, from 79.6% in July. As for producer prices, the 12-month PPI inflation eased somewhat to 143.7% from 144.6% in July, but needless to say, it remains too elevated for comfort, attesting to a continuation of cost-push pressures (Graph 1; Table 1). Contributions to headline CPI inflation suggest that food inflation made a significant disinflationary contribution this August vs last (Graph 2), which was accompanied by transportation category to some extent, but almost all other components – notably housing, houseware and clothing (and shoes) – made higher contributions to inflation this August vs. last, therefore, net/net, driving the 12-month rate higher. Food inflation dropped materially in August -- to 90.3% y/y, from 94.6% a month ago – thanks to a very sharp drop in unprocessed food inflation, even though 12-month processed food inflation rose further in the month to a three-digit 100.4%, up from 98% in July (Graph 3). A softer than expected headline print notwithstanding, underlying indicators do not offer much comfort at all. The 12-month core inflation by the popular B and C indices rose sharply further to 72.5% and 66.1%, respectively, from 68.5% and 61.7% in July (Graph 4; Table 2). Service inflation also rose to 54.3%, y/y, from 51.5% in July, on the back of fairly broad-based increases in sub-categories (Graph 5). More importantly, monthly core and service inflation rat...