A faster-than-expected slowing in Turkey’s headline inflation rate in October masked the fact that core inflation rose to its highest level in nearly a year, Capital Economics said, adding that interest rate hikes are possible over the next 3-6 months.
Commenting on the October inflation data released Tuesday, Capital Economics economist William Jackson said, “With the headline rate likely to rise again, we still think interest rate hikes are more likely than not over the next 3-6 months.”
Turkstat data showed that headline inflation slowed to 7.60 percent from 7.90 percent in the previous month. Economists had expected a 7.80 inflation figure. Core inflation, however, jumped to 8.9 percent. This probably reflects the pass through from the previous fall in the lira as well as deep-seated problems, including rapid wage growth and limited spare economic capacity, Jackson said.
Going forward, the economist expects energy inflation to accelerate further as the drag on inflation from last year’s fall in oil prices unwinds. Jackson forecast the headline inflation rate to rise above 9 percent in the first quarter of next year, well above the central bank’s 5 percent target.
“The recent rally in the lira following Sunday’s election result has eased the immediate pressure on the central bank to tighten monetary conditions,” Jackson said. “And it remains to be seen how much influence the new government will try to exert on monetary policy. But we continue to think that the MPC will raise interest rates over the next 3-6 months.”
The material has been provided by InstaForex Company – www.instaforex.com