Bloomberg News

Turkish Inflation Rate Rises to 3 1/2-Year High on Energy

May 03, 2012

Turkey’s inflation rate climbed to 11.1 percent in April, the highest in 3 1/2 years, adding to pressure on the central bank to tighten monetary policy.

Inflation accelerated from 10.4 percent in March, the statistics office in Ankara said today. The median forecast in a Bloomberg survey of seven economists was 11 percent. Core inflation, excluding items such as food and energy, accelerated to 8.2 percent from 7.9 percent. Consumer prices rose 1.5 percent in the month.

Increases in natural gas and electricity costs 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.

“This high inflation print means the central bank will want the currency to appreciate and keep lira liquidity tight,” Yarkin Cebeci, economist for the region at JPMorgan Chase & Co. in Istanbul, said in an e-mailed response to questions. “The data is actually lira friendly.”

The currency added 0.2 percent to 1.7576 per dollar at 10:30 a.m. in Istanbul. It has rallied more than 7 percent this year, reversing an 18 percent slump in 2011. Yields on benchmark two-year lira bonds fell 2 basis points to 9.32 percent.

‘Very Sensitive’

Basci varies rates daily within a so-called corridor from 5.75 percent to 11.5 percent. He has pushed borrowing costs toward the top of that range in the past two months, helping protect the lira’s gains.

The bank needs “lower food inflation, lira appreciation, or a combination of both” to meet its year-end projections, leaving it “very sensitive” to the exchange rate, Inan Demir, chief economist at Finansbank AS in Istanbul, said today in an emailed report before the figures were released.

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 made to the Cabinet yesterday and 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.

Outlook Cut

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 expect a sharper slowdown to between 2 percent and 2.5 percent. The IMF also predicts that Turkey will struggle to rein in inflation this year, forecasting an average rate of 10.6 percent.

To contact the reporter on this story: Emre Peker in Ankara at epeker2@bloomberg.net; Ali Berat Meric in Ankara at americ@bloomberg.net.

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


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