Is Turkey entering a deflationary period?
Turkey's February inflation data beat market expectations as the producer price index (PPI) rose 0.11% and the consumer price index (CPI) rose 0.02% in February, according to data released yesterday by
Turkey's State Institute of Statistics (DIE).
Based on the February inflation figures, annual inflation figures were projected as 10.58% and 8.69% for PPI and CPI, down from 10.7% and 9.23% respectively.
Economists indicate that based on the first two months' inflation figures,
Turkey could be entering a deflationary period.
Tax hikes on alcohol and tobacco products did not impact consumer prices as much as had been anticipated. On the other hand, the sharp decline in clothing prices due to the ongoing discount season kept the monthly CPI below the one percent level. Price cuts in health, education and entertainment also contributed to the low CPI. The core CPI, excluding food and energy, rose 0.05% in February.
Clothing and shoe prices will contribute to deflation throughout 2005 thanks to the rising competition caused by
China's increasing penetration into global textile markets.
The surprising decline of 0.1% in agricultural prices, despite the winter season, and a slight increase of 0.1% in the
manufacturing prices led to a lower-than-expected PPI.
Price cuts in the
manufacturing sector were mostly in textiles (-1.2%), base metals (-2%), motor vehicles (-1.73%), office equipment (-12%) and chemicals (-2.1%). In addition, the appreciating TRY had a positive impact on the pricing behavior of manufacturers.
The February inflation data suggest that the Central Bank of
Turkey will likely lower the overnight interest rates by another 50-100 base points at its March 8th meeting.
Economists forecast that government's inflation target of 8% could be met at the end of the year. Some economists have gone as far as to say that even 7% inflation would not been an unreasonable goal.