Turkish inflation eases

ANKARA – The pace of inflation in Turkey eased in December with the rise in consumer prices coming in under expectations at 3.2 percent in the month, producing an annual year-end rate of 68.5 percent, official figures showed yesterday. «This level of year-on-year inflation, given the devaluation this year, is pretty much OK,» said Mehmet Mazi, a trader specializing in Turkey at HSBC in London. The lira has lost around half its value against the dollar since February, when Ankara abandoned a currency peg amid financial crisis, and the end of the year, putting pressure on the prices of imported goods. Turkey is currently implementing a $19 billion, IMF-backed crisis recovery program and is negotiating a further $10 billion in loans from the fund this year. The government aims to cut consumer price inflation to 35 percent by end-2002. «I believe the pace in falling inflation will go on with the new IMF program and the Central Bank monetary policy announced yesterday,» Mazi said. The Central Bank reiterated on Wednesday that it aimed to make inflation targeting the pillar of its monetary policy. The 3.2-percent month-on-month rise in CPI compared to a 4.2-percent rise in November, while wholesale prices rose 4.1 percent after a 4.2-percent rise, the State Statistics Institute said. On an annual basis, consumer prices (CPI) rose 68.5 percent while wholesale prices (WPI) rose 88.6 percent. That compared to annual CPI of 67.3 and WPI of 84.5 percent in November. Core inflation, defined as private sector manufacturing prices, was 2.4 percent in December, below the 3.43 percent predicted in a Reuters poll. «It’s a good set of numbers. It rounds off the year nicely,» said Alex Garrard, emerging markets analyst at UBS Warburg in London. He said WPI had been slightly above expectations on a monthly basis but CPI was a fair bit better than expected. «It will reassure the market that the pace of monthly increases in inflation numbers is probably going to slow.» The government has said it hoped to keep year-end annual CPI to some 60 percent, but a newspaper report this week said that in its forthcoming letter of intent to the International Monetary Fund the government had already raised its year-end estimates to 68 percent for CPI and 86 percent for WPI. Agriculture prices showed a sharp rise in December, up a monthly 13.2 percent. «I’m not sure to what extent the increase in prices in agriculture are affected by seasonal factors,» Garrard said, adding that bad weather in Turkey in December may have influenced that figure. As a result of the inflation figures, the Istanbul National-100 stock index ended up 1.38 percent at 14,272.67 points and the lira strengthened on the interbank market with best bids of 1,421,000 to the dollar compared to 1,452,000 on Wednesday. Yields on the most heavily traded bonds maturing on July 10, 2002 dipped to 70.18 percent from 70.65 percent on Wednesday. Markets have risen in recent days on expectations Turkey will sign a new IMF standby accord this month worth $10 billion in additional loans this year. Turkey is expected to submit a new letter of intent early in January.

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