Turkey | May CPI surprised on the downside

Summary

Consumer prices increased by 0.89% in May, sizably lower than expectations, resulting in an annual inflation of 16.59% (down from 17.14% the month before). We maintain our year-end inflation forecast at 15% and expect the CBRT to start an easing cycle only very gradually in September.

Key points

• Key points:
• The downside surprise seems to stem from TURKSTAT’s inability to collect prices due to lock down in May. Given the potential adjustment when economy reopens, this weakness might be temporary.
• The weaker than expected core inflation led by the seasonally lower realizations in certain subgroups (such as clothing and entertainment), resulted in annual core C inflation to decline to 17% (prev: 17.8%).
• Domestic producer price inflation once again surprised on the upside with 3.9% mom increase implying an annual inflation of 38.3% indicating the deepening cost-push factors.
• Annual services inflation continued to increase indicating still alive inertia. Besides, trend inflation is hovering around 14.5%.
• The deepening cost push factors, continuing exchange rate pass-thru and uncertainties in price adjustments might still result in a worsening inflation outlook.

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