Turkey | CPI surprised on the downside but maintained an increasing trend

Summary

Consumer prices increased by 2.98% in May, much lower than market consensus (4%), which resulted in an annual figure of 73.5%. We expect consumer inflation to accelerate above 80% in the coming months before slowing down to near 60% given positive base effects in the last two months of the year.

Key points

• Key points:
• Food prices increased by 1.36% mom in May, leading to an annual figure of 93.1% up from 90.8% in April.
• Energy prices rose by 2.9% mom with an annual figure surging to 121%. Price hikes in gas and electricity along with ongoing upward price adjustments in fuel prices, due to higher global energy prices and exchange rate depreciation, will keep upside pressure on energy inflation.
• Despite stronger cost push factors, recent currency depreciation and still robust demand, core prices increased less than expected (3.4% mom vs 4.8% expected).
• Cost push factors were reinforced as domestic producer prices rose by 8.8% mom and 132% yoy.
• According to our calculation, main contributors to the recent rapid acceleration in consumer inflation are the depreciation of the exchange rate, monetary policy and the global demand shocks. In contrast, domestic supply and global supply shocks also had an impact but the magnitude proved to be much lower.

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