According to CPI data released by TurkStat yesterday, the index increased by 1.85 percent in January compared to December and rose 8.19 percent over the same month last year. Tax hikes on fuel, alcohol and tobacco at the end of the year created upward pressure on prices, as reflected in the January increase in the CPI.
The largest monthly increase in prices occurred in the alcoholic beverage and tobacco products group, with a 22.04 percent rise in prices in January. The largest annual increase in prices was also realized in the same group, with prices 47.54 percent higher last month than they were a year prior. Transportation was a distant second, climbing 3.53 percent monthly and increasing 10.44 percent compared to January 2009.
Pressure on the central bank
The central bank, which predicted in its first quarter inflation report that these tax increases would add 1.5 percentage points to inflation in 2010, looks to be facing a tough year, as the rise in the CPI has already surpassed their predictions. Moreover, the 8.19 percent annual inflation rate is close to the 8.3 percent upper limit set by the central bank for 2010, raising questions over whether the central bank will tighten its monetary policy.
Although an upward trend in the CPI started late last year, with an annual increase of 5.08 percent in November, growing to 6.53 percent in December, the latest rise represents an unexpected and exogenous shock to prices outside of normal increases that would occur during an economic recovery.
According to Akbank’s economic research division, core inflation -- a measure of inflation that removes goods subject to volatile price movements -- showed that prices haven’t increased significantly, hovering at the 3.8 percent rate experienced in December. The highest increases in prices of specific goods occurred in cigarettes, out of season vegetables such as onions and peppers and highway and bridge toll fees -- also subject to tax hikes at the end of 2009 -- all of which experienced price hikes above 15 percent in January. The largest decreases in prices were in winter clothing, with the price of products such as sweaters and winter boots falling 10 percent, likely a result of the massive promotions that many clothing retailers have early in the winter season.
The producer price index (PPI), which began increasing in October amid the slow recovery from the global financial crisis, rose an annual 6.3 percent in January, up 0.37 percentage points from December. The greatest increase in producer prices occurred in copper and copper products, which saw an 8.20 percent increase over December prices.
