Turkish Inflation Likely Quickened in Blow for Erdogan Rate Hope

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Turkish inflation probably quickened again, reducing the likelihood of a summer interest-rate cut sought by the country's president.

Data due Monday will show inflation rose an annual 16.8% in June, up from 16.6% in the previous month, according to the median estimate in a Bloomberg survey of 18 analysts. All but four economists predicted an acceleration in price growth, which snapped seven months of increases in May.

Key Insights

Turkey eased its strict coronavirus lockdown last month after a drop in the number of new cases, boosting consumer confidence. But continued lira weakness and rising global commodity prices mean it's too early to start a new cycle of monetary easing, even as President Recep Tayyip Erdogan signaled a possible rate cut in July or August.

The central bank under Governor Sahap Kavcioglu kept interest rates unchanged for a third meeting in June, but adopted a more hawkish tone.

The lira has weakened more than 15% against the dollar since the governor's abrupt appointment in March, even though he's pledged to work toward a positive real rate -- or borrowing costs adjusted for realized and expected inflation -- and to maintain tight policy until the bank's 5% inflation target is achieved.

What Economists Say

Kavcioglu has previously said inflation probably peaked in April, but Deutsche Bank AG economists say price growth will “rise sharply in June and July” to 17.5% and above 18%, respectively. The likely acceleration will leave the central bank “with less room to cut prematurely,” analysts including Fatih Akcelik said in a note Friday.

Can Ayan, an Istanbul-based economist at Aktif Bank, is one of the few dissenters predicting a deceleration in June. Ayan said inflation likely inched down last month on the back of clothing and food costs but expects “a peak in July like everyone else.”

What to Watch

A hike in utility prices will likely create upside pressure on headline inflation. Turkey increased the cost of electricity by 15% and natural-gas prices by up to 20% as of July 1.

Annual retail inflation in Istanbul, Turkey's largest city, accelerated to an annual 16.12% in June from 15.78% in the previous month. Turkey's central bank will hold its next rate-setting meeting July 14.