Central Bank argues in its November inflation outlook reports that the different rates of price increases in tradable goods and service sector prices should be closely watched. The report singles out rents and suggests that high increases in rents may well pose risks for 2005 inflation.
The data released by the State Institute of Statistics showed that in November y/y CPI inflation came to 9.8%, however over the same period rents went up by a higher 19.7%. According to the Central Bank report due to base year effect in Jan-Apr of 2005 there may be acceleration in the inflation rate, yet afterwards downward trend will be observed. Another potential risk mentioned in the report is the likely adverse developments with regard to Turkey’s EU bid.
As far as the labour market and wages are concerned, the Central Bank argues that high productivity will inevitably trigger demand for labour in return increase in wages some time in the future. However, the report suggests, increase in labour cost may remain limited as long as the public sector continues to stick with a wage policy in line with inflation projections, and the private sector follows the public sector. Import pr ices of raw materials should also be closely watched in 2005, the Central Bank underlines.
According to the report, if the growth in 2005 would be lower than projections, tax revenues could also remain lower than expected that, in return, may require additional budgetary measures, in that case, the domestic oil prices may increase.