Turkish inflation at its 'worst' before expected slowdown

Turkey’s consumer inflation rose 0.4% from April to May, bringing the year-on-year increase to 9.66%, the highest level in 25 months. The data, announced earlier this week, was hardly a surprise since the Central Bank had already warned that May inflation would be the “worst.” The markets had even braced for 9.78%, but a 1.35% monthly decrease in food and non-alcoholic beverages amid declining fruit and vegetable prices contained the rise. Prices of green pepper, tomato, sweet pea and eggplant, for instance, fell by 25% to 52%.

The monthly inflation in producer prices was down 0.52% in May. Core inflation — known also as “real inflation” for being stripped from seasonal and external effects — increased 1.5% in the same period, bringing the year-on-year rate to 9.77%, the highest in the last seven years.

Inflation is expected to start slowing down in June and reduce pressure on interest rates. Central Bank Gov. Erdem Basci, briefing the Cabinet on June 2, said interest rates would be lowered in line with the positive inflation forecast, Prime Minister Recep Tayyip Erdogan told journalists the following day.

“The Central Bank said the interest rates will go down. We’ll see,” Erdogan said. Despite the briefing, he continued to publicly bash the bank: “I totally disapprove of their stance on interest rates. I don’t accept it. The interest rate is the cause and inflation the effect. The high interest rate is the reason behind failing efforts to bring inflation down.”