Turkey inflation – how low can it go?

Turkish inflation fell to a 15-month low in December, but analysts say that some tax rises may mean the end of disinflation

Request a PDF

Consumer prices increased by 0.38% month-on-month in December and by 6.16% year-on-year, data released by the Turkish Statistical Institute (TurkStat) showed on Thursday.

On a monthly basis, the highest increase – of 1.55% - was in food and non-alcoholic beverages, followed by a 1.23% rise in communication tariffs and 0.39% for prices in hotels, cafes and restaurants, TurkStat said in a statement.

The index for clothing and footwear declined by 1.5%, for transportation by 0.27% and for recreation and culture by 0.17%, it said.

In annual terms, the highest increase was in housing, with 11.37%, followed by hotels, cafes and restaurants with 9.31%, and miscellaneous goods and services, with 8.66%.

Analyst Nilufer Sezgin from Erste Bank noted that the 6.16% figure was "the lowest year-end figure since the implementation of the inflation targeting regime in 2002," but added that there were "impediments on the horizon for a further decline towards the 5% target."

On Wednesday, Turkey raised the minimum fixed tax on a packet of cigarettes to 3.15 lira ($1.77) from 2.90 lira, and the government also announced a new tax of 0.09 lira per packet, Reuters reported.

 More from Emergingmarkets.org
 The 'most boring' emerging market currency
 Emerging Europe central banker of the year
 Countries with fastest-rising salaries in 2013
The increase in prices of tobacco products caused by the tax hike could add up to 0.8 percentage points to headline consumer inflation in January, bringing annual inflation back towards 7% in the beginning of the year, Sezgin said.

"Moreover, food price inflation, which roughly accounted for half of the 4.3 percentage points decline in annual CPI in 2012, may put upward pressure on the headline in 2013. All in all, we pencilled in 6.4% inflation for next year," Sezgin added.

Disinflation is likely "to stall" in 2013, Gaelle Blanchard, an analyst with Societe Generale, also said.

"Easier monetary policy should eventually support domestic demand, potentially increasing demand-pull price pressures. Given the still uncertain global economic environment though, the labour market is unlikely to become very tight in the coming month," she said.

"The evolution of commodity prices - especially oil - will obviously be an important driver on the cost side, and the risk there is more on the upside," Blanchard added.