Bloomberg News

Turkish Inflation to Hit 3 1/2-Year High on Energy, Survey Shows

May 02, 2012

Turkey’s inflation rate probably rose to a three-and-a-half-year high last month on rising energy costs, a survey of economists showed.

Inflation accelerated to 11 percent, the highest since October 2008, from 10.4 percent the previous month, according to the median estimate of seven economists surveyed by Bloomberg. Estimates ranged from 10.6 percent to 11.3 percent. The figures will be announced by the government statistics office in Ankara at 10 a.m. tomorrow.

Increases in natural gas and electricity prices have derailed central bank Governor Erdem Basci’s prediction that inflation would start to decline in April. He now says it will peak that month with a “significant” decline to follow in May. Basci is seeking to support the lira and reduce Turkey’s inflation rate and current account gap without endangering the government’s target for economic growth.

“Achieving all of them at the same time is a very difficult task,” Ibrahim Aksoy, an economist at Sekerbank TAS in Istanbul, said in a report today. Tighter monetary policy will probably be needed to defend the currency and bring inflation toward the central bank’s 5 percent target, he said.

Basci, who varies borrowing costs daily within a so-called rates corridor, has tightened policy in the past two months. The measures helped preserve the lira’s gains this year. The currency has rallied more than 7 percent, reversing an 18 percent slump in 2011. It traded at 1.7616 per dollar at 4 p.m. in Istanbul.

‘Tight Grip’

“The central bank will maintain a tight grip on liquidity until inflation dynamics improve visibly,” Tevfik Aksoy, chief economist for the region at Morgan Stanley in London, said in a report today.

The central bank forecasts that inflation will slow to 6.5 percent this year and reach the 5 percent target by mid-2013, according to a presentation the bank made to the Cabinet today and then posted on its website.

The bank’s latest survey of inflation expectations among economists and businesses, published on April 20, forecast a rate of 6.96 percent in 12 months’ time.

Turkey’s economic boom of the past two years has swelled the country’s current-account deficit as well as spurring inflation. While the gap has been narrowing since October, it’s still the biggest among emerging markets at about 10 percent of economic output. Basci aims to narrow the deficit by reducing the credit growth that is helping fuel demand for imports.

Rebalancing the economy will be difficult because of “less-buoyant external demand and worsening terms of trade,” Standard & Poor’s said on May 1, cutting its outlook for Turkey’s credit rating to stable from positive.

The government is targeting economic growth of 4 percent this year, less than half last year’s pace. S&P and the International Monetary Fund forecast a sharper slowdown to between 2 and 2.5 percent. The IMF also predicts that Turkey will fail to rein in inflation this year, with a year-end forecast of 10.6 percent.

To contact the reporter on this story: Emre Peker in Ankara at epeker2@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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