Bloomberg News

Turkish Inflation Probably Slowed in January, Survey Shows

February 01, 2007

Turkey's inflation rate probably fell in January, the fourth consecutive month of decline, as lower oil prices and three interest rate increases last year capped price gains, a survey of economists showed.

Annual consumer inflation slowed to 9.2 percent from 9.7 percent in December, according to the median estimate of 15 economists surveyed by Bloomberg. The statistics agency will release the inflation report tomorrow at 4:30 p.m. in Ankara.

Turkey's central bank left interest rates unchanged for a sixth monthly meeting on Jan. 16, saying that while slowing consumer demand and lower oil prices were helping reduce inflation, it remained ``cautious.'' The bank raised its benchmark rate by 4.25 percentage points to 17.5 percent in three moves in June and July to slow inflation and support the lira.

``We're starting to see the impact of lower commodity and energy prices,'' said Ali Cakiroglu, an analyst at TSKB Securities in Istanbul. ``Still, we don't think a rate cut is likely until the third quarter, and then only 75 to 100 basis points.''

Crude oil prices hit a 12-month low of $50.5 a barrel on Jan. 18, from a high of $77 in July.

Central bank head Durmus Yilmaz said on Jan. 29 that he expected those lower costs to cause ``an important fall in annual inflation from the second quarter of the year.''

Inflation Expectations

There remain risks to inflation, particularly from government spending in 2007, an election year, Yilmaz said. Inflation expectations were also ``significantly'' higher than the bank's year-end target of 4 percent, he said.

Consumer prices will probably increase 7.1 percent over the next 12 months, according to the bank's latest survey of businessmen and economists released on Jan. 22. The forecast was unchanged from the previous survey, two weeks earlier.

The central bank is targeting consumer-price growth of 4 percent for the end of 2007, a target set under a $10 billion loan accord with the International Monetary Fund. Its target for inflation in March is 9.2 percent. The country missed last year's goal of 5 percent because of a slide in the value of the lira in May and June and higher global energy prices.

Rising interest rates have helped the lira rebound 20 percent against the dollar since June 23, pegging back inflation. The currency had slumped 23 percent in the previous eight weeks.

Higher lending costs have also slowed loan growth. Total outstanding consumer loans increased 6.5 percent in the fourth quarter of 2006 and 3 percent in the third quarter, compared with 24 percent growth in the second quarter, according to central bank data.

The inflation rate has fallen from more than 70 percent at the start of 2002 and reached a three-decade low of 7.5 percent in October of 2005.

To contact the reporter on this story: Steve Bryant in Ankara at

To contact the editor responsible for this story: Chris Kirkham in London at

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