Turkey’s consumer prices edged higher than expected in December as food costs jumped, official data showed Monday, while the treasury and finance minister said the country would take “a decisive stance” in the fight against inflation.
Annual inflation climbed to 14.6% from 14% in November, the Turkish Statistical Institute (TurkStat) data showed, keeping pressure on the central bank to maintain a tight monetary policy even after it sharply hiked interest rates at the end of 2020.
Month-on-month, consumer prices rose 1.25% in December, the Turkish Statistical Institute (TurkStat) said, also above the market expectations.
"We will take a decisive stance in the fight against inflation with a holistic approach," Treasury and Finance Minister Lütfi Elvan said on Twitter.
“We will support monetary policy with steps taken in the structural dimension,” Elvan noted. “The year 2021 will be a year of reform focused on macroeconomic stability.”
Economists in a Reuters poll expected annual inflation would be 14.2% last month, compared to November when it jumped to 14.03%. The poll expected a 0.9% monthly rise.
A Bloomberg survey also expected annual inflation to come to 14.2%. A group of 19 economists surveyed by Anadolu Agency (AA) last week projected the figure to increase to 14.34%.
Inflation and a weak lira prompted the Central Bank of the Republic of Turkey (CBRT) to reverse an easing cycle in mid-2020.
Under its new governor, Naci Ağbal, the bank has hiked rates by 675 points since November alone, to 17%.
Ağbal pledged to tighten policy when needed to keep prices in check.
Stable structure of fiscal discipline
“In this period, when monetary policy is focused on inflation, the need for additional support that pandemic conditions could bring will be provided through selective and targeted public finance policies," Elvan said.
“We will also take measures to ensure a quality and stable structure of fiscal discipline," he said.
While the lira has rallied in the last two months, analysts said the earlier rise in import prices continued to lift broader inflation.
“Food and forex weigh on the data. Food inflation may continue to be the most important indicator of inflation in 2021,” said Şekerbank chief economist Gülay Elif Yıldırım.
“A structural fight against inflation is necessary, especially in food prices, instead of rate hikes,” she told Reuters, adding she does not expect another rate hike this month.
The highest annual price rise was recorded in miscellaneous goods and services with 28.12%.
Food and non-alcoholic drinks, as well as transportation prices, were both up more than 20% year-over-year last month, the data showed, with dry weather playing a role in rising farming and production costs.
“Food inflation, which was 21.1% in November, slowed down to 20.6% year-on-year in December, but the increase in food underlies inflationary risks, together with both the volatility in price increases on a monthly basis and drought risks,” said Enver Erkan, an economist at Istanbul-based Tera Yatırım.
“The winter season, which was less rainy compared to the previous years, may show its reflection in prices in terms of agricultural productivity in the following months, although there is no agricultural drought yet,” he said in a note.
On the other hand, clothing and footwear items posted negative inflation with minus 0.32%.
“Alcoholic beverages and tobacco with 0.65%, communication with 5.73% and education with 6.84% were the other main groups where the lowest annual increases were realized,” the institute said.
Erkan said they saw the reflection of the effects of the exchange rate increase from the past on the prices, and the increases in the commodity and energy group increased inflation more than expected.
On a monthly basis, the highest increase was posted by furnishings and household equipment with 3.46%, while the largest decrease was seen in clothing and footwear with 3.18%.
The producer price index separately rose 2.36% month-on-month in December, for an annual rise of 25.15%.
Erkan said the recent increase in electricity and natural gas prices will have a multiplier effect in terms of affecting both the end user and production costs, while he also noted that the impact of the bridge and highway hikes on transportation costs would increase inflation.
Ağbal last month said the policy will remain tight in 2021 to finally lower inflation in a lasting way and hit a target of 5% by 2023.
He stressed that the bank was determined to meet its inflation forecast of 9.4% for the end of 2021.
“We assume that the central bank will maintain orthodox policies and take care of inflation risks,” Erkan said.
"Our inflation assumption is that although there will be a decrease in the second half of the year, 2021 may occur within the 10%-11% range," he said.
