BY SEBNEM TURHAN
Inflation increased with the first impact of depreciation in TRY, while deteriorated pricing perception and fluctuating FX rates are expected to be more determinant in the upcoming months.
The Consumer Price Index (CPI) increased by 1.68% on monthly basis and rose by 17.14% on yearly basis in April, according to the Turkish Statistical Institute (TurkStat). Thus, the annual inflation has reached the highest level since May 2019.
The monthly CPI increased 1.8 points less than the economists’ expectations. The monthly CPI came under the influence of increase in fresh fruits and vegetables as well as price changes in imported products stemmed from depreciation in TRY.
Increasing prices with the impact of new season and opening in clothing and footwear market have adversely affected consumer prices, and the most severe effect in TRY depreciation has been observed in domestic inflation (D-PPI).
D-PPI broke a record
The Domestic Producer Price Index (D-PPI) increased monthly by 4.34% and rose by 35.17% on annual basis in April, according to TurkStat. Meanwhile, the D-PPI increased by 12.91% in the first four months of 2021.
The 4-month increase has reached the highest level since 2006, when the calculation method of D-PPI was updated. In annual D-PPI, such an increase was seen in November 2018 last time. The impact of foreign exchange (FX) rates is estimated to be more determinant in the coming period.
Pricing behaviors deteriorates
Although the Central Bank Governor Sahap Kavcioglu said the inflation will start to decline in May, the high course of the D-PPI shows that the impact of fluctuating FX rates will continue to be determinant on CPI. USD/TRY harshly fluctuated with the change of the Central Bank Governor in the middle of March and depreciation in TRY reached 12%. Alongside of fluctuations in FX rates, deteriorated pricing behaviors continue to threaten the inflation, according to analysts.