Surging Food Prices Bring Turkish CPI to Highest Since 2008

(Bloomberg) -- Turkey's consumer inflation accelerated to the highest level since 2008, driven by a surge in food and clothing prices spurred by the weaker lira.

The annual consumer-inflation rate rose to 11.3 percent in March from 10.1 percent a month earlier, compared with the median estimate of 10.7 percent in a Bloomberg survey of economists. Prices rose 1 percent from the previous month, the state statistics institute said Monday.

The central bank had warned that unprocessed food prices and the delayed effect of the lira's depreciation could lead to a “marked” short-term increase in the CPI. Although the currency has stabilized since falling to a record low against the dollar in January, producers' costs are still rising at a higher pace than consumer prices, making it harder for the central bank to meet its year-end inflation forecast of 8 percent.

“The fact that producer prices inflation remains high signals more pressure on consumer inflation going forward,” according to Muammer Komurcuoglu, an Istanbul-based economist at IS Investment. “The inflation rate will be in double digits for a considerable part of the rest of the year. Risks are building to the upside of our year-end forecast of 9 percent.”

The lira reversed to losses after the data and was trading 0.1 percent lower at 3.6411 per dollar at 10:53 a.m. in Istanbul.

March inflation was the highest since October 2008, when the annual gain in consumer prices was 12 percent. Food prices rose an annual 12.5 percent through March, compared to 8.7 percent a month earlier. Inflation in apparel rose to 8.5 percent from 6.8 percent during the same period, according to Turkstat data.

Core inflation, which strips out volatile items including food, energy and gold, rose to 9.5 percent from 8.6 percent in February. Producer prices rose 16.1 percent through last month, the highest pace in about nine years, according to data compiled by Bloomberg.

Governor Murat Cetinkaya has repeatedly said liquidity would be restricted until he sees a significant improvement in inflation, which is now more than double his 5 percent target. On Monday, he told governors from Central Asia, the Balkans and the Black Sea region that monetary and fiscal policies alone can't replace structural reforms, which remain key to stronger growth in the longer term.

--With assistance from Firat Kozok

To contact the reporter on this story: Onur Ant in Ankara at oant@bloomberg.net.

To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Amy Teibel, Stuart Biggs