Turkey’s official headline inflation rate crept up again in January to an annual rate of 14.97% from 14.6% in December, prompting some analysts to say they doubted that the increase would prompt the central bank into further tightening as it appeared to have already sold the case to investors that its shift to economic orthodoxy—in which rates are hiked when the market senses a clear need for it—is here to stay.

Course of Turkish inflation starting from September 2020 as seen by the Istanbul-based Inflation Research Group (ENAG) versus Turkey's official statistical agency TUIK (Table: ENAG).

On a month-on-month basis, the data—as announced by the Turkish Statistica Institute (TUIK, or Turkstat—showed January inflation, which tends to be volatile due to seasonal effects, at 1.68%. The reliability of TUIK’s inflation and other statistical data remains under scrutiny, with some researchers claiming that Turkish inflation is running at around three times the rate that the official figures present. The Inflation Research Group (ENAG), led by Istanbul academics, said on February 2 that its calculations showed monthly inflation in January was 2.99%.

Rate ‘may edge up further’

Responding to the official inflation figures, Capital Economics said the annual rate may edge up a little further in the next few months, but it anticipated that the benchmark interest rate, standing at 17%, would be left on hold for the rest of this year.

Jason Tuvey at Capital said in a note: “We doubt that the further rise in inflation in January will persuade the central bank to deliver additional monetary tightening. Previous interest rate hikes—the one-week repo rate [the benchmark rate] was raised by 675bp over November and December—as well as improved communications from the CBRT [Central Bank of the Republic of Turkey] seem to have done enough to convince investors that the shift to orthodoxy is here to stay.

“This was reinforced by last week’s Inflation Report briefing and all of this has supported a further rally in the lira, which will help to limit any further rise in inflation. In any case, [CBRT] Governor [Naci] Agbal stated that the central bank expected inflation to rise a bit further in the near-term. And while January’s rate decision struck a hawkish tone, rates were left on hold amid signs that Turkey’s economic recovery is rapidly losing steam. While further rate hikes seem unlikely, monetary conditions will probably be kept tight for a prolonged period.”

Turkish Finance Minister Lutfi Elvan said on Twitter: “The figures announced show we are far from our inflation targets. We will never compromise on our measures to achieve the target. Quality and sustainable growth is not possible without price stability.”

Fairly broad-based

The January rise in inflation was fairly broad-based. Of the 12 major price categories, inflation rose in eight.

Capital noted:“There was another big jump in furnishings inflation, from 18.0% y/y in December to 23.2% y/y in January. This probably reflects the effects of previous falls in the lira as well as a shift in demand away from services and towards goods that has been a key feature of the coronavirus crisis.

“There were also hefty rises in clothing and housing and utilities inflation. All of this was partially offset by another drop in food inflation. Core inflation rose from 14.3% y/y in December to 15.5% y/y last month.”