March CPI Above Expectations

Monthly inflation came in at 1.19% notably higher than the market consensus of 0.8%, made a bad surprise thanks to food and energy prices. Higher food prices are mostly due to the seasonal effects while the latter filtered into the surprise rise in headline inflation thanks to the pass-through effect arising out of weaker Turkish lira even if the oil prices hang around low levels in the global markets.

On the other side, Turkish March Core (I) Consumer Price Index was not a bad number that already had been steadily on decline since last August. On monthly basis, the index rose by 0.6% while the annual print was 7.1% (and 3-month moving average stood at 7.8%).

In light of the recent data the inflation may decline to some extent in the second quarter of this year. Still, I do not expect inflation forecasts to be sharply revised down. Taking into account the reasons behind the rising energy prices, I do not anticipate that Turkish central bank will not have any policy implications as response to the March inflation print, in other words, the bank will not stick to the current practice and no lowering rates seem on the horizon.

I should also note that with the decline in exports rising concerns around Turkey’s current account deficit that for a while had been ignored thanks to the oil prices, March inflation print does not build a supportive case for Turkish assets, and I do not expect TRY bonds to remain supported as the market is not likely to contemplate any easing from the Turkish central bank. We already have seen Turkey 2-Year Government Bond yield rising by 12 bps to 8.82% as of 9:00 GMT.

Turkey - Inflation Trends