Inflation’s post-Pastor trip almost done

TURKEY - In Brief 04 Nov 2019 by Murat Ucer

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Consumer prices rose by 2%, m/m, in October, which was in line with the consensus as well as our forecast. The 12-month CPI inflation hence eased further to 8.6%, from 9.3% in September. Producer prices (domestic) barely rose in the month (0.2%), which drove the 12-month rate down to 1.7% from 2.4% in the previous month, pointing to an almost complete reversal of cost pressures (Graph 1; Table 1). Going with the contributions of key components to overall CPI inflation, the drop was chiefly driven by softer food prices, which has now fallen to a 12-month rate of 7.8%, from 9.5% in September, and houseware products, the latter thanks to last year’s high base (Graphs 2-3).Underlying inflation indicators were also encouraging this time, with the 12-month core inflation (the C-Index) declining further to 6.7% from 7.5% in the previous month, as its monthly momentum, we reckon, i.e. three-month average of the seasonally-adjusted rate, has also eased notably. But given the volatility in the series, especially in recent months, we would need to see at least a few more observations before concluding that core inflation dynamics might have permanently improved. Twelve-month service inflation also fell to 12% in October from 12.5% in September, but both the annual rate and its monthly momentum remain relatively high and sticky (Graphs 4-7; Table 2).All in all, today’s print was in line with expectations -- and encouraging in some respects as well, but, given the expected reversal of base effects, the best is now behind us. In line with the consensus (and the CBRT), we expect inflation to edge up markedly in November, before finishing the year at around 12%. After that, inflation’...