Turkey's inflation rate set to rise to double-digit figures

The inflation rate may rise as high as 10.4 percent, up from 9.7 percent in April, according to the median estimate of 10 economists surveyed by Bloomberg.

On a monthly basis, another poll conducted by Turkey’s CNBC-e showed consumer prices are expected to rise 1.08 percent and producer prices to rise 1.7 percent.�

The main drivers of the high inflation remain record-high food and energy prices, which put pressure on the Central Bank to continue rate hikes despite a sharp slowdown in economic growth. �

Higher global commodity prices are driving inflation in Turkey, which imports 95 percent of its natural gas and oil. The Central Bank, which raised its benchmark interest rate last month for the first time since 2006, said on May 28 that it is ready to continue raising rates in a “measured” way to counter the risk of rising inflation caused by high oil and food prices.

“The chances of higher inflation in the short term are increasing because of uncertainty in the global economy, and because of energy prices,'' the Central Bank said. “The Monetary Policy Committee stands ready to raise interest rates in a measured fashion if necessary.”

The Bank's stance on interest rates should ensure a faster decrease in inflation when food and energy prices begin to ease up, said the Bank in its statement. Food price increases may slow after weather conditions improve, it added.

Turkey's economy grew 3.4 percent in the fourth quarter, the slowest pace in more than five years. Inflation may also be stoked by utility costs over the next few months. The government raised household gas prices by 7.4 percent Sunday. The price increases are aimed at covering losses by state-run energy companies following the jump in commodity prices.

“We expect the consumer price index, or CPI, inflation (in May) to be 1.3 percent, higher than the 1.1 percent consensus. If true, this will take the 12-month trailing inflation rate to 10.5 percent into the double digit zone after exactly a year in single digit territory,” said Tevfik Aksoy, Morgan Stanley's chief economist for Turkey, the Middle East and North Africa, was quoted as saying by Turkish Daily News. “That will increase the number of emerging countries with double digit inflation to 14.”

Retail prices in Istanbul, Turkey's biggest city, rose 0.6 percent in May, the city's chamber of commerce said. The increase compares with a 1.6 percent rise in May 2007, the chamber said in an e-mailed statement Sunday. In the 12 months before May retail prices rose 14.2 percent, up from 13.8 percent a month earlier.

Photo: AP