(Bloomberg) -- Turkey's consumer inflation fared better than forecast in September but the weak lira coupled with a summertime credit binge expected to distort the price growth outlook.
Slowing price gains in housing and apparel offset the impact of a depreciating currency to keep inflation little changed for a second month. Prices last month rose 11.8% from a year earlier, less than all forecasts in a Bloomberg survey whose median estimate was 12.1%.
“Turkey inflation for September was better than expected but hardly encouraging still,” said Timothy Ash, a strategist at BlueBay Asset Management in London. Core inflation, which strips out volatile items such as food and energy, pushed higher, and that shows the central bank “has lots more work to do,” he said.
Core inflation climbed to 11.32% from 11% previous month, a sign that some of the underlying cost pressures may be increasing.
Price gains got a boost from the flurry of loans issued to consumers
in the third quarter, when households took advantage of sub-inflation interest rates to borrow at the fastest pace in more than a decade. While the government later rolled back the stimulus program that fueled such credit growth, the lira tumbled to historic lows and inflation in basic goods remained elevated.
“Food and transportation costs have especially driven prices higher,” Can Ayan, an Istanbul-based economist at Aktif Bank, said before the data release. “Even though we see a gradual slowdown in the coming months, the cost of funding provided by the central bank will remain elevated for some time.”
Weaker Lira
The central bank unexpectedly raised its benchmark rate on Sept. 24, the first increase since a currency rout in 2018. Inflation is now on par with its overnight lending rate, and on Friday the average cost of cash provided by the monetary authority to commercial lenders was 11.32%, up from 7.34% less than three months ago.
Turkey Stuns With Rate Hike to Cap Effort of Stealth Tightening
Even so, many economists think policy remains too loose, with interest rates still negative when adjusted for inflation. The government predicts that inflation will slow to 10.5% by year-end and 8% by end-2021, Treasury and Finance Minister Berat Albayrak said last week.
The central bank's next rate-setting and inflation report meetings are scheduled for Oct. 22 and Oct. 28, respectively.
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