Data released by the Turkish Statistical Institute showed on Tuesday that Consumer prices in Turkey in April rose 0.78 percent from the previous month, significantly below forecasts. Prices increased 6.57 percent year-on-year, also considerably lower than estimates and fell for the fourth consecutive month. The reading was the lowest level since May 2013, when inflation was 6.51 percent.
The Central Bank of Turkey has repeatedly linked further interest rate cuts to improvements in inflation outlook although recently it introduced a few measured rate cuts to its key policy rates. The CBT head Murat Cetinkaya already pointed out at the rate decision on 20th March that what mattered most was the development of the core rate (in Turkey the components energy, beverages, tobacco and gold are excluded). The situation here does not look quite as good.
Food and non-alcoholic beverages prices gained 1.38 percent and clothing and footwear prices moved up 9.32 percent. Alcoholic beverages and tobacco registered the biggest annual increase among components, up 12.84 percent.
At the same time, producer price inflation fell to 2.87 percent from 3.8 percent in March but above the expected rate of 2.78 percent. Compared to March, producer prices climbed 0.52 percent versus the expected growth of 0.43 percent.
“For some time, the Turkey's Central Bank was under pressure from government officials who have called for lower interest rates to boost economic growth. During the first rate meeting under his leadership Cetinkaya seemed relatively unimpressed by the demands of several AKP politicians. The following will nonetheless apply for the prices today: the lower inflation, the more likely a rate cut and therefore the weaker lira becomes.” notes Commerzbank in a report.
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