TRY: How fast is inflation falling?

Turkey’s current-account balance improved so far, but it is too early to be confident about sustainability. The same holds true for today’s inflation readings, Commerzbank’s FX analyst Tatha Ghose notes.

Some moderation in Turkish inflation

“On Friday, the Istanbul Chamber of Commerce published its monthly cost of living index, which showed cost of living increasing by 3.64% m/m and 59.1% y/y. The media headlines were that cost of living increase had slowed down to 3.64% m/m. But, at this rate of month-on-month increase, annualised inflation still works out to 53%.”

“Many commentators view the Istanbul data as a cross-check on the national data: the two used to run close to each other historically, but then diverged after President Tayyip Erdogan made multiple changes to the Stats Office personnel. There’s some moderation in inflation, but nothing policymakers should be getting sanguine about. In fact, the pace of moderation could even be tapering off, which is the big risk scenario.”

“Turkish inflation might moderate to the 30%-40% range rather readily – because a part of the inflation upswing had obviously been globally correlated – but, this could not tell us whether Turkish monetary policy can ultimately tackle the endemic domestic inflation problem or not. One pre-requisite is that no other contradictory policies are implemented which would offset the contractionary impact of tighter monetary policy.”

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