Turkish inflation climbs to three-year high, may have peaked

Turkish inflation climbed for a fourth consecutive month in January to the highest level since November 2008 after food prices surged. Bonds yields slumped on speculation the rate may now decline.

The inflation rate advanced to 10.6 per cent, the statistics agency in Ankara said on its website. That matched the median estimate of eight economists in a Bloomberg survey. In the month, prices rose 0.6 per cent. Producer price inflation slowed.

“Inflation is likely to have peaked at this point and, provided that the currency remains relatively stable, we are likely to see a gradual but faster improvement,” Tevfik Aksoy, an economist for the region at Morgan Stanley in London, said in an e-mailed report to clients today. “We expect the first main decline in inflation to materialise in May.”

The lira has rebounded more than 7 per cent against the dollar this year after sliding 18 per cent in 2011, the biggest drop among global currencies tracked by Bloomberg. Inflation has more than doubled from a four-decade low of 4 per cent last March as investors pulled money out of emerging markets and the government raised prices, prompting the central bank to lend at above the benchmark rate of 5.75 per cent.

Yields on benchmark two-year lira bonds fell 27 basis points to 9.10 per cent at 11:16am in Istanbul, the lowest level in almost three months. Yields peaked at 11.59 per cent last month, a 2 1/2-year high. The lira fell less than 0.1 per cent to 1.7589 per dollar.

There is a 67 per cent chance the lira will strengthen to 1.72 per dollar in the next three months, according to implied probability calculated from currency options.

Turkey took the necessary measures to battle inflation, though it may miss its year-end target by “a little,” central bank Governor Erdem Basci said on January 31. He lifted his forecast for 2012 to 6.5 per cent, compared with an official goal of 5 per cent. There’s no need for additional tightening in monetary policy, Basci said.

“We’re talking about a small increase in annual inflation, which is in line with central bank expectations,” said Nilufer Sezgin, chief economist at Istanbul-based brokerage Ekspres Invest. “The outlook and risk perception abroad is good, and in the short term, inflation is expected to hover at high levels.”

Food prices increased a monthly 1.1 percent in January and transport prices rose 2.1 per cent, the statistics office said. The price of clothing slumped 7.9 per cent.

Inflation in 12 months’ time was forecast at 6.91 per cent in a fortnightly survey of executives and economists published by the central bank on January 20. Predictions rose from 6.85 per cent two weeks earlier.

Producer price inflation declined to an annual 11.1 per cent from 13.3 per cent in December, the office said. The central bank’s preferred measure of core inflation accelerated to the highest since May 2007 at 8.4 per cent last month.