Back to single digits, as expected

TURKEY - In Brief 03 Oct 2019 by Murat Ucer

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CPI inflation rose by 1%, m/m, in September, lower than the market consensus (and our forecast) of some 1.3%, m/m, as the 12-month CPI inflation declined to 9.3%, from 15% in August. Our forecast slippage mainly stemmed from food and beverage inflation, which came in at a negative 0.6%, versus our estimate of a slight (0.3%) increase, with the 12-month food inflation dropping sharply further to 9.5%, from 17.2% in August, thanks, once again, to the turnaround in unprocessed food prices. Twelve-month PPI inflation fell more dramatically, to 2.4% in September from 13.4% in August, as it continued to follow lira’s path closely (Graphs 1-3; Table 1).As for contributions, September’s CPI inflation was driven mainly by housing and transportation prices, on the back of administrative price hikes, but these were dwarfed by last year’s very high base inflation in all sub-components (Graph 4).Turning to underlying inflation indicators, namely core (C-index) and service inflation, while annual gains are notable here as well, especially in core inflation, which is now down to 7.5% from 13.6% in August (Graphs 5-6; Table 2), their monthly momentum still point to stickiness, with both going at a pace of around 1% per month, despite the recent relative lira strength and (in our view) ongoing weakness in domestic demand (Graphs 7-8). Bottom Line: As it had been the anticipation for some time, CPI-inflation is finally back to single digits, mainly on the back of last year’s hugely elevated base. We think the best is likely behind us however, with CPI-inflation likely hovering around these levels in October, but rising in November-December because of a reversal of base effects, before e...