July inflation: up for technical reasons

TURKEY - In Brief 05 Aug 2019 by Murat Ucer

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Consumer prices rose by 1.4%, m/m, in July lower than the consensus (1.6%) and our even somewhat higher forecast, but the 12-month rate nevertheless increased to 16.6%, from 15.7% in June because of administrative price hikes and tax adjustments, which, incidentally, marked the first increase since last October. Meanwhile, producer prices dropped by 1%, with the 12-month rate thus declining sharply to 21.7% from 25% in June, with the wedge between the two indicators also shrinking noticeably (Graph 1; Table 1).Our forecast error on the CPI inflation stemmed from a very benign print on (unprocessed) food prices, which came in markedly lower than seasonal averages, with the 12-month unprocessed inflation declining to 12.4%, down from 15.3% in June (Graphs 2-3).Our standard graph on contributions to CPI inflation by sub-groups shows rather clearly that the headline CPI inflation was driven mainly by three sub-groups: transportation, houseware and housing (Graph 4). Specifically, transportation added 0.75 pps to the monthly CPI inflation in July this year (vs. 0.19 pps in July 2018) and houseware contributed 0.34 pps (July 2018: 0.14 pps), both of which were largely driven by reversals in indirect taxes, while contribution from housing was at 0.44 pps (vs. 0.16 pps in July 2018) due to electricity price hikes (of 15%). (A full list of the items that are affected from administrative price hikes and tax adjustments is presented at this link).Underlying inflation indicators, although these are also influenced from one-off tax and administrative adjustments, did not behave all that well in July. Core inflation (C-index) rose 2.1% in July, m/m, taking the 12-month rate up -- al...