Turkey’s annual consumer price inflation rose to 10.85% in April, the highest level seen this year, from 10.23% in March, the Turkish Statistical Institute (TUIK) announced on May 3.

Markets were heavily impacted by the stronger-than-expected inflation, with the Turkish lira (TRY) hitting a new all-time low of 4.2487 against the USD. The previous record low of 4.1944 came on April 11. As the market digested renewed dumping of the TRY there was even talk among analysts of a possible emergency interest rate cut.

The lira trimmed its losses and was trading at 4.1899 against the USD, up 0.30% d/d, as of 11:45 local time while the benchmark BIST-100 was down 0.11% to 104,609. The yield on the Turkish government’s 10-year benchmark lira bonds was also stressed, moving up to 13.24% from 12.88% at the close on May 2.

“Today’s stronger-than-expected Turkish inflation data will add to fears that the economy is overheating and strengthens the case for the MPC to hike interest rates further over the coming months”, Jason Tuvey of Capital Economics said in an e-mailed note.

Turkey’s inflation jumped into the double digits in February 2017. Since then the rate has only once moved back into the single digits, with that occurrence recorded in July last year. The peak point was last November’s 12.98%. Since then there has been a slow descent to the March figure of 10.23%.

Volatile food prices declined by 0.21% m/m in April, bringing annual food inflation to 8.81% in from 10.37% in March.

The annual rise in the C-index, one of the central bank’s favourite core inflation indicators, rose to 12.24% in April from 11.44% in March.

The C-index touched 12.30% in December, the highest level posted since January 2004 when the index was first compiled.

TUIK also reported on May 3 that annual PPI had moved up to the highest level since November’s 17.30%, hitting 16.37% after recording 14.28% in March.

Annual PPI fell to 12.14% in January, the lowest level since December 2016, after hitting 17.30% last November, the highest level since July 2008. PPI inflation has been gradually rising since January.

The Turkish central bank has lifted its CPI inflation forecast for 2018 to 8.4% in its latest inflation report from its previous estimate of 7.9% given in the January inflation report.

The central bank's latest survey of economists' inflation expectations for the year-end, released on April 19, produced a forecast of 10.07%, up from 9.49% in the March survey.

At the latest monetary policy committee (MPC) meeting held on April 25, the central bank raised the late liquidity window rate by 75bp to 13.50%, but left the benchmark repo rate at 8%, the overnight lending rate at 9.25% and the overnight borrowing rate at 7.25%.

Prior to the MPC meeting the market consensus was for a 50bp increase in the top rate, with analysts concluding that a hike would help reduce the chances of the stressed Turkish economy experiencing a hard landing ahead of the June 24 snap presidential and parliamentary elections.