Turkey’s annual consumer price inflation came in at 10.35% for January, the lowest level recorded since July last year, data from national statistics office TUIK showed on February 5.

Markets had expected annual inflation of 10.6% for January, according to a Bloomberg poll.

The Turkish lira gained 0.33% d/d against the USD to trade at 3.7621 as of 17:30 local time on February 5 while the benchmark Istanbul stock market index BIST-100 was down 0.94% to 117,009.

Annual inflation eased from the 14-year high of 12.98% in November last year to 11.92% in December due to base effects. In January, the base effects continued and food inflation came in lower than expected. 

Volatile food prices rose by 1.67% m/m, bringing annual food inflation sharply down from 13.79% in December to 8.76% in January.

Consumer prices increased by 1.02% m/m last month, lower than the market expectation of 1.28% determined by a Reuters poll.

The annual rise in the C-index, one of the central bank’s favourite core inflation indicators, slowed from 12.30% in December, the highest level posted since January 2004 when the index was first compiled, to 12.18% in January.

TUIK also reported on February 5 that domestic producer prices rose 0.99% in January after increasing 1.37% m/m in the previous month. This brought down the annual increase from 15.47% in December to 12.14% in January, the lowest level since December 2016.

Annual producer prices inflation hit to 17.30% last November, the highest level since July 2008.

Turkish inflation is likely to edge down further over the rest of this year, William Jackson of Capital Economics, said on February 5, commenting on the latest inflation release.

Even so, with the headline rate likely to remain far above the Bank’s inflation target and the monetary policy committee (MPC) apparently adopting a more hawkish stance than in the past, Capital Economics doubted that monetary easing was on the cards for the near term.

“We think the MPC will keep its average cost of liquidity provision – the best measure of overall monetary conditions – unchanged at its current level of 12.75% over the course of this year,” Jackson said.

Turkish President Tayyip Erdogan on February 1 met central bank governor Murat Cetinkaya and state bank officials to discuss steps to reduce interest rates and attract investment.

Turkey’s central bank raised its end-2018 consumer price inflation forecast to 7.9% in January from the previous estimate of 7%. The official target still stands at 5%.

Expectations for Turkey's end-2018 inflation stood at 9.5% % in January, the central bank’s regular survey of businesses and analysts showed on January 12.

In its latest monetary policy committee (MPC) meeting held on January 18, the central bank of Turkey, battling double-digit inflation and a fluctuating Turkish lira while facing criticism that it was not doing enough to address an overheating economy, kept its one-week repo (8%), overnight lending (9.25%) and borrowing (7.25%) rates on hold. It also opted to keep its late liquidity window lending rate unchanged at 12.75%.