Turkey’s annual inflation hits 3-year peak at 10.45 percent

Tuesday's figure is 0.45 percent above a market expectation of 10 percent for year-end. Having had to revise a recent year-end inflation target of 8.3 percent, the central bank had said this figure could be 10.26 percent, citing, in particular, a steep devaluation in the lira against foreign exchange.

TurkStat said Tuesday in their price index report that consumer prices were up 10.45 percent and producer prices rose 13.33 percent in 2011 over the preceding year. According to the report, consumer prices were up 0.58 percent, while producer prices increased 1 percent in December of last year over November 2011. The highest increase in consumer prices in December was seen in the index for alcoholic beverages and tobacco with 18.5 percent compared with the same month of the previous year.

Service prices experienced a 17.14 percent rise, while transportation, food and non-alcoholic beverage prices jumped by 12.2 percent in the given period. Furniture costs also rose 11.04 in December 2011 over the final four weeks of 2010.

Having remained below a level of 5 percent in the first quarter of 2011, Turkey’s inflation entered a speedy rising trend starting in the second quarter. Expectations in the markets were that 2011 inflation would be around 10 percent. Evaluating inflation developments in a meeting with economists from Turkish banks separately on Tuesday, the central bank said they were ready to take the necessary measures to maintain price stability in markets. Bank Governor Erdem Başçı said on Monday they expected inflation to fall starting from May this year in line with a slowdown in Turkey’s domestic demand growth. The bank cited an increase in the value of foreign exchange against the Turkish lira as the major factor to push inflation higher through the end of 2011. The lira hit a record low level of 1.92 against the US dollar in late trade last Wednesday. The central bank intervened in the markets to sell around $3 billion in a forex-selling auction on Monday. Observers said the bank’s maneuvers were in line with market expectations. Başçı also said on Monday that the bank has applied “additional tightening” since last week, adding that the additional tightening would be “strong, effective and temporary.” The changes in foreign exchange and interest rates will define the duration of the stipulated extra measures, economists argued. Hakan Aklar from Ak Yatırım said inflation in Turkish markets traditionally hovered at relatively higher levels due to seasonal effects during the first half of a year, adding the bank will exert its energy to contain this pressure until May 2012. “From this date we could see a decline in inflation rates and another decline is expected to come in the month of October,” he explained. In separate comments, observers pointed at interest rates that are expected to continue at high levels in the first few months of 2012. Economists say high interest rates will put short-term pressure on inflation; however, inflation could drop due to a slow down in domestic demand following the first three quarters of 2012.

Markets concerned with fluctuating oil prices

Oil prices jumped to nearly $101 a barrel Tuesday in Asia amid concerns that rising tensions between Western powers and Iran could lead to crude supply disruptions. Observers note rising energy input costs along with increased taxes also played a role in high Turkish inflation for 2011. Economist Mehmet Öğütçü said on Tuesday oil prices could increase by 20 to 25 percent in the first quarter if the current tension between Iran and the US continues. He said oil prices in international markets could near 2008 levels, adding, however, such a rise in oil prices was temporary.

Mensur Akgün from İstanbul Kültür Üniversity joined Öğütçü in that “Iran is not expected (or cannot take the risk) to extend the crisis for too long.” Oil trade accounts for 60 percent of Iran’s foreign trade. Akgün said Iran would not risk losing “a serious source of income.” The latest US sanctions cut off any American financial institution that works with Iran’s central bank, blocking the main path for payments for Iranian oil.

Meanwhile, produce was by far the “champion of the inflation league” in 2011 as produce saw the highest price hikes in different months throughout the year. The highest price increase in December was experienced in broccoli with 48.89 percent over the preceding month. This was followed by eggplant with 40.1 percent and cucumber with 38.4 percent. Following the release of the annual inflation data, civil servants are expected to receive 2.67 percent of their paid salaries between the months of July and December 2011 in compensation for the depreciation of wages due to price increases in the given period. In related reports, the new director-general of the UN’s Food and Agriculture Organization (FAO) said on Tuesday food prices may ease in 2012 due to a slowing global economy, though no drastic drop from high levels is expected. José Graziano da Silva, the Brazilian who replaced Senegal’s Jacques Diouf at the helm of the FAO at the start of 2012, said volatility in food markets was likely to continue and that more people would be at risk of hunger due to economic instability. “Prices will not be going up as in the sense of the last two to three years but will also not drop. There may be some reductions but not drastic,” Graziano da Silva told a news conference in Rome. Global food prices measured by the FAO hit a peak in February but have been falling since June as crops have improved and concerns about global economic turmoil have reined in demand growth. High food prices have helped fuel inflation and contributed to civil unrest and the Arab Spring earlier this year.