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Turkish annual inflation expected to resume downward trend in August

Published: Updated:

Turkey's annual inflation is expected to slip to 15.51 percent in August thanks to the “base effect” measured against last year's spike, while monthly inflation is expected to rise due to higher prices of cigarettes and natural gas.

In the wake of last year's currency crisis, which erased some 30 percent of the lira's value against dollar, overall inflation peaked at a 15-year high above 25 percent.

Overall prices have since declined due in part to last year's interest-rate hikes and, especially in recent months, because inflation shot up around mid-2018, providing a higher base. Inflation stood at 16.65 percent in July.

Year-on-year estimates ranged between 14.6 and 15.96 percent, according to the Reuters poll of 13 economists. Month-on-month, inflation is expected to rise 1.3 percent in August, the poll also showed, with estimates ranging between a rise of 0.5 and 1.69 percent.

A fall in food and clothing prices will have a reducing impact on inflation, said Muammer Komurcuoglu, an economist at Is Yatirim. Cigarette and gas price rises will push in the other direction, he said.

Tobacco companies raised some cigarette prices as of August leading to a raise of around three lira per pack. Economists calculate around 1 percentage-point increase by the price hikes.

In August, Turkish state energy company Botas raised natural gas prices by an average of 14.97 percent for residential users.

Turkish inflation rose a bit less than expected to 16.65 percent in July after tax cuts on some goods expired, briefly disrupting a downward trend that has cleared the path for central bank to cut interest rates more.

“In September and October, with the base effect, we expect annual inflation to come down to around nine to 10 percent. In the following months, we expect inflation to go up again and finish the year at around 14 percent,” Komurcuoglu also said.

The median estimate for inflation at the end of 2019 stood at 14.05 percent, the poll showed, below the government's estimate of 15.9 percent.

In July, Turkey's central bank slashed its key rate to 19.75 percent from 24 percent where it had remained since September, when a collapse in the Turkish lira tipped the economy into recession.

August inflation data will be released on September 3 at 0700 GMT.