Inflation: Up on base effect, sticky underneath

TURKEY - Report 03 Dec 2019 by Murat Ucer

Consumer price inflation surprised on the downside in November coming in at 0.4%, m/m, mainly on the back of better than expected food prices (according to our forecast), more specifically unprocessed food prices. As expected though, the 12-month CPI inflation increased to a double-digit 10.6%, y/y, from 8.6% in October. Domestic-PPI inflation was modestly negative in November at -0.1%, m/m, but the 12-month D-PPI inflation nevertheless rose to 4.3% as well, from 1.7% in the previous month.

Despite lower than expected food inflation in the month, its 12-month rate increased to 8.9% in November up from 7.8% in the previous month. The increase in the 12-month non-food inflation (our calculation) was somewhat steeper, which rose to 11.1% from 8.7%, during the same period.

Finally, core inflation (C-Index) posted a monthly rise of 0.5%, taking the 12-month rate up to 9.3% from 6.7% in the previous month.

All these increases in the 12-month rate are pretty much driven by last year’s low base. The contribution graph below gives an idea about the strength of this base effect by CPI components, the strongest effects coming from transportation, houseware and food categories.

Meanwhile, stickiness of sorts in the underlying inflation dynamics continues. The monthly pace of core inflation (which we measure by the three-month moving average of the seasonally-adjusted figure) increased to 0.7% in November (our calculation), from 0.5% in October, while monthly pace of service inflation is still running around a rather elevated 1%, which is broadly unchanged from October.

Meanwhile, service inflation is sticky in 12-month terms as well, remaining elevated at just above 12%, which also seems reasonably broad-based.

Now read on...

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