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Inflation eases to one-year low 7.8 pct, eyes on central bank.

ySTANBUL (CyHAN)- Turkey's annualized inflation of consumer prices slowed to 7.8 percent in October, marking the lowest level in 11 months after rising sharply in the preceding month, data released by the Turkish Statistics Institute (TurkStat) have shown. Consumer prices increased by 1.96 percent in October over September, still higher than the 1.03 percent rise in September over August. Monday's data arrive amid anticipation that earlier tax and energy hikes would push October inflation much higher. The markets, over a month ago, expected a 2.17 percent inflation increase in October. Observers, however, argued a lower-than-expected rise in food prices helped mitigate the upward pressure from tax and energy hikes on October inflation. This, many argued, will offer Turkish Central Bank Governor Erdem BaE-E*y's team an opportunity to consider a further cut in key interest rates. In the face of slowing domestic growth and increasing inflation, the overnight borrowing rate, which is at the upper end of the bank's interest rate corridor, was brought down to 9.5 percent from 10 percent last month.

Triggered by hikes in fuel prices, foods and alcoholic beverages, Turkish inflation hit the 9.19 percent level in September. In August, the rate of inflation growth was 8.8 percent. TurkStat cited swelling housing costs and prices of food and non-alcoholic beverages for the annual growth in prices last month. Housing costs jumped by 11.75 percent, food and non-alcoholic beverage prices gained 7.8 percent in October over the same month in 2011. On the monthly basis, the consumer price index increased 1.96 percent in October, data showed. TurkStat also said Turkey's producer price inflation (PPI) slowed to 2.57 percent in October from 4.03 percent in September.

Data released by TurkStat also reveals that the index for clothing and footwear recorded the highest increase at 6.81 percent, compared with the previous month. The product that saw the highest price increase -- also referred to as the inflation champion -- was ladies' pullovers with 22.96 percent. In October 2012 within the average prices of 444 items in the index, the average prices of 75 items remained unchanged while the average prices of 290 items increased and the average prices of 79 items decreased.

At the beginning of the 10th month, the Turkish government increased natural gas prices by 9.8 percent and electricity prices for residential, commercial and industrial users by 9.7 percent, 7.9 percent and 4 percent, respectively. The price hikes followed a rise in the private consumption tax (EuTV) on fuel, automobiles and alcoholic beverages.

Citing October tax hikes, the Central Bank of Turkey increased its end-2012 inflation forecast to 7.4 percent from an earlier 6.2 percent last month. Mehmet Besimoy-lu, Oyak Yatyrym's chief economist, said on Monday that end-2012 inflation could hit 8 percent. Markets also welcomed the decline in core inflation (excluding energy, unprocessed food, alcoholic beverages, tobacco and gold -- some of the major factors behind high inflation) from 6.8 percent to 6.1 percent in October.

Central bank seen to lower key interest rate

Latest inflation figures, observers argued, could strengthen the central bank's hand in lowering the borrowing rates. In face of slowing domestic growth and increasing inflation, the overnight borrowing rate, which is the upper end of the bank's interest-rate corridor, was brought down to 9.5 percent from 10 percent last month. "Turkey currently enjoys a recovery in foreign investor sentiment and foreign exchange rates hover around reasonable levels. The central bank will feel comfortable with key interest rates as long as this outlook prevails," Besimoy-lu noted. Gizem Euztok AltynsaE* from Garanti Yatyrym says inflation could slow to as low as 6.5 percent through the second half of 2013, asserting that a government goal of 5 percent "looks less likely to happen." Referring to a central bank meeting on Nov. 20, she said they expected a 50 point decline in the key interest rate.

EFG ystanbul Menkul Dey-erler's chief economist, Haluk BE-rE-mcekE*i, said the inflation results arrived in line with central bank expectations and that the bank would not change its current monetary policy. Turkey's Akbank said in a note on Monday that the central bank could be expected to lower interest rates by another 50 points. If it decides to do so, the bank will have lowered the borrowing rate for the third subsequent time after nearly seven months of keeping it unchanged. Central Bank Governor Erdem BaE-E*y will meet economists in Ankara on Wednesday.

(Cihan/Today's Zaman) CyHAN

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Publication:Cihan News Agency (CNA)
Date:Nov 5, 2012
Words:774
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