Inflation risk in 2005

ISTANBUL (Reuters) – Turkey’s central bank warned on Friday that high oil prices, rigidity in service sector prices and raw metal prices could present a risk for the 2005 inflation target. Turkey has set a 2004 inflation target of 12 percent under its $19 billion loan accord with the International Monetary Fund and inflation is targeted to fall to 8 percent in 2005. The bank said in a report on the inflation outlook that domestic demand and work force costs may not support the decline in inflation in 2005 as much as they have in the last three years. «There are risk factors such as high oil prices increasing energy costs and exerting pressure on both the current account and inflation, as well as a possible liquidity squeeze on international markets,» the bank said. The statement said that an increase in employment next year would also exert pressure on prices. Rises in wholesale price inflation were expected to remain steady, excluding seasonal fluctuations in agricultural prices and adjustments in public sector prices, it said. The bank said that there was expected to be a slowdown in the rate of economic growth in the final quarter of the year but that production was expected to remain high because of foreign demand and consumer confidence. The government has set an official target of 5 percent growth this year, but officials and the IMF have both said that actual growth could be around 10 percent. Last week, the central bank’s latest survey of expectations had forecast year-end consumer price inflation to be 9.7 percent, down from a previous forecast of 10.5 percent. The survey also showed CPI was seen at 9.0 percent in one year’s time, down from the previous forecast of 9.5 percent.