Turkish central bank says cost factors main inflation driver

Turkey’s central bank said cost effects are the main driver of inflation, predicting an acceleration in price increases this month.

The base effect of inflation is also set to push up inflation during June, the central bank said in a statement on its website on Thursday. The tight stance toward monetary policy will be maintained, it said.

Turkey’s central bank raised interest rates by 500 basis points this year, including 425 points of increases in the past month, to arrest a slump in the lira that threatened to create a currency crisis and stoked inflation. The bank’s view that cost pressures, rather than demand, are the main causes of inflation currently match the government’s view.

The inflation rate in Turkey climbed to 12.2 percent in May, more than three times the emerging-market average, from 10.9 percent in April, after government stimulus brought a surge in economic growth and increased consumer demand. Consumer spending was the biggest contributor to economic growth of 7.4 percent in the first quarter. Growth accelerated from 7.3 percent annually three months earlier.

Most economists expect inflation to continue accelerating during the summer months, before slowing down in the remainder of the year to lower double-figures.

Certain categories of unprocessed foods may also post price rises in June that are above the seasonal average, the bank said. The government had previously announced measures to curb food price inflation, saying they would help slow inflation.

Core inflation in Turkey, a key measure of price increases, was 16 percent in May and producer price inflation accelerated to more than 20 percent as the lira weakened. 

Surging energy prices and imports of gold are hurting efforts to curb the current account deficit, the bank said. The deficit widened to about 6.5 percent of GDP in April, the highest level in major emerging markets.