Inflation Still Remains a Headache For Turkish Authorities Despite Late Ease

The high inflation remains to be a headache for Turkish authorities in Ankara despite a slight ease in December, a decline from record-high to 12 percent.

Inflation in Turkey eased partially in December after reaching the highest rate in 14 years the month earlier, but remained stubbornly high at almost 12 percent, in a continued headache for policymakers, according to statistics released Wednesday.

Consumer prices rose by 11.92 percent year-on-year in December, the Turkish statistical institute said, down slightly from 12.98 percent in November, which was the highest annual rate recorded since 2003.
On a month-on-month basis, inflation stood at 0.69 percent in December from November, with the biggest price hikes seen in transportation, while clothing prices declined.

The Turkish central bank’s official inflation target is an annual rate of five percent, but double-digit data over the last months have made a mockery of this.

Nevertheless, the bank has been unwilling to make any substantial rate hikes to combat inflation, as President Recep Tayyip Erdogan is wary that rising borrowing costs could put the brakes on growth.
Economists at QNB Finansbank in Istanbul said the December reading of 11.92 percent was the highest year-end figure since 2003.

They forecast that double-digit core inflation would persist throughout the first half of 2018 and could take longer to fall if the lira stayed weak.

“We think inflation will continue to ease over the coming months,” added William Jackson, an economist at Capital Economics in London, arguing the latest reading would take some pressure off the central bank for further tightening.

“Even so, headline inflation is likely to remain in double digits until late this year,” Mr. Jackson said in a note to clients.

Erdogan has built his popularity on solid stewardship of the economy in the wake of Turkey’s devastating 2000-2001 financial crisis. Any signs of economic weakness would be a bad omen for the Turkish strongman as he prepares for 2019 elections.

Turkey notched up an impressive growth of 11.1 percent in the third quarter, but economists warn this masks growing risk factors, such as inflation and a high current account deficit.