Turkey | Consumer inflation end 2020 at %14.6

Consumer prices increased by 1.25% in December, leading the annual inflation to reach 14.6% up from 14% in November. We expect inflation to increase till May 2021 before a gradual disinflation path thereafter and end the year at 10.5% helped by sizable positive base effects in 4Q21.

Key points

• Key points:
• Food inflation continued to be one of the main factors on upside surprise in inflation as it increased by 2.7% mom but led by base effects, annual food inflation slightly retreated to 21.2% from 21.7% in November.
• Core prices rose by 1.1% mom on lagged impact of exchange rate pass-thru on certain sensitive items, resulted in annual core C inflation to jump up to 14.3% from 13.3%.
• Cost push factors maintained upside risks on inflation outlook as domestic producer prices rose by 2.3% mom and resulted in an annual inflation of 25.1%.
• Cost push factors, high inertia, unfavorable base effects, higher than expected price adjustments like the minimum wage hike could dominate the impact of the recent currency stabilization and decelerating domestic demand in the very short term.
• Tight monetary stance should be maintained and accompanied by a coordinated policy mix of authorities in order to accelerate disinflation process.

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