Four key points from yesterday’s (Turkish) May inflation
As you probably know, May inflation turned out to be much higher than expectations. Have a look at the note by RBS’s Tim Ash if you want the full details, but I will just mention four key points from yesterday’s release:
I. CPI and PPI were out of whack for some time. Well, no more:
II.
Yesterday’s release has made me think twice before using the Istanbul Chamber of Commerce indices to forecast TurkStat inflation:
especially for food inflation:
I knew this already, but as a Turkish saying goes, “one mishap is better than a thousand warnings”. Lesson learned:)
II.
Is Investment, the asset management arm of Is Bank, noted that they are not happy with the monthly composition of the food basket seeing oranges, lemons and grapefruits posting the highest monthly rises and still standing in the basket despite being out of season. We will be tracking the new seasons harvest better in the coming month’s basket. I never bother to look at the composition of the index in detail, but this is an interesting observation. One of these days, I need to drop by at TurkStat and ask about these indices. I once had this project of writing a book about Turkish data; I am still nowhere near it. OK, I am writing it down for September- and Ankara is really nice that time of the year, not to mention that I could visit the fish nazi as well…
III.
Last but not the least, my friend Ozlem @ Erste Securites has a very interesting observation that I had totally missed: It is interesting to see food prices rising by 4.7% when agricultural prices are posting a monthly decline of 1.9%. This leads us to think that import prices might be exerting some presure on domestic food prices. In recent years we saw significant deviations in domestic prices from world prices but that might be changing due to more dependency on imported products while we need to see more data on this to reach a more concrete view.
This could mean what Ozlem is suggesting, or it could mean the food price rise is a temporary phenomenon, caused by a badly-representative basket, or God-knows-what. We’ll have to wait and see, as she notes as well…
BTW, all charts are courtesy of friends at Turkey Data Monitor; contact them at the email/number at the hyperlink if you want to learn more about their software.
4 Responses to “Four key points from yesterday’s (Turkish) May inflation”
RogoCop • June 4th, 2011 at 11:20 pm
Great piece Emre. The FT's Lex column had a nice article on inflation. They make an excellent point which is relevent to Turkey. Even if inflation was mostly driven by food prices, this matters because higher food prices disproportionally hurt the poor more. And this is what leads to second-round effects as workers demand higher wages.
When do you think the central bank will reverse course and raise interest rates?
edeliveli • June 5th, 2011 at 8:52 am
Thanks Rogocop. Great nick, BTW:)
Yep, I tweeted the FT article, and someone commented that it doesn't apply to Turkey anymore, as the CBT is not following inflation, but credit, capacity utilization, or anything else that fits their mood every week:)
Joking aside, as much as I am ashamed to say it, they are accommodating the government, which means we "should" see rate hikes soon after the elections. The lira is usually stronger during summer months because of the tourism revenues and other seasonal effects, so they could hold out until the fall, but base effects will be working to their disadvantage as well during the summer. Just put the numbers in; even with zero mom inflation during June and July, we are hitting above 8%, if I am not mistaken. So if I were the MPC, I would do a front-loaded hike, along right after the elections to keep inflation expectations at bay. But I really don't think this will work without some sort of capital controls or at the very least strong macroprudential measures from the Banking Regulator…
RogoCop • June 5th, 2011 at 1:32 pm
Let's hope you are right and the central bank front-loads tightening. Unfortunately there aren't too many previous episodes of tightening (mid-2006 and mid-2008). In both cases, the MPC had to raise rates fairly aggressively.
Also, I wonder if the AKP doesn't win a super-majority (367 seats), should we really expect tighter fiscal policy? I don't know their timeframe, but the AKP will introduce a new constitution through referendum, so they will need strong popular support. And, I assume any tightening will affect the 2012 budget not 2011.
edeliveli • June 5th, 2011 at 1:40 pm
I explore the implications of AKP's electoral success on fiscal policy in tomorrow's Daily News column (published at 17.00 EST), but I mainly agree with you. That's why I think the best result would be for the AKP to end up with less than 330 seats, in which case it would have to seek consensus with other parties on the Constitution and therefore would not feel the need to pork-barrel…
As for the timing, you can do a tight budget in 2012, but you can implement expenditure-reducing measures right after the elections… The original 2011 budget does not include the extra TRY 13.5bn coming from the tax amnesty, anyway…
