Turkish C.Bank head signals shift away from headline inflation

ANKARA

The head of Turkey’s Central Bank on Wednesday signaled a shift away from the sometimes-volatile headline inflation figure to core inflation, an indicator that may better reflect the true strength of the nation’s economy.

"In the coming days, more focus will be given to excluding the effects of supply shocks (on inflation), beside our analyses of demand factors that can be affected by monetary policy, core inflation developments, and their compliance with our medium-term inflation target," Sahap Kavcioglu said at a meeting of the German-Turkish Chamber of Commerce and Industry in the capital Ankara.

Extraordinary conditions, especially due to the coronavirus pandemic, boost the importance of core inflation indicators, which are used to measure the underlying trend of inflation, Kavcioglu stressed.

According to the latest data, Turkey’s annual inflation climbed to 19.25% in August, up 0.30 percentage points from a month ago.

Noting that annual inflation rose significantly in the food sector (included in headline inflation) but only slightly in the services group (part of core inflation), the Central Bank governor said:

"We think that the temporary factors on the inflation outlook will ease in the short term and inflation will take a downward trend in the last quarter."

Non-food inflation is expected to remain below headline inflation for the rest of the year, he added.

Pointing to rising producer prices in developed and emerging countries like Turkey, Kavcioglu said this rise is driven by supply disruptions due to increasing commodity prices and the inability of production to respond to rapidly growing demand.

Kavcioglu added that higher international transportation costs and extended delivery times are other culprits in rising producer prices.​​​​​​​