Turkish inflation rises

ANKARA (Reuters) – Turkey’s inflation rate rose faster than expected in January, official data showed on Friday, reinforcing market expectations that the central bank is likely to hold interest rates steady for now. The Turkish Statistics Institute (TUIK) said the consumer price index (CPI) rose 0.53 percent in January month-on-month for an annual rise of 7.93 percent. The producer price index (PPI) in January jumped 1.96 percent for an annual gain of 5.11 percent as Turkey suffered a spell of cold weather. «I don’t expect a rate cut from the central bank in the first months of the year,» said Sengul Sonek, an economist at Oyakbank. «We think that inflation will be slightly above the year-end target. Our target was 5.6 percent. We may reconsider our target in the light of this data.» In a Reuters poll of 20 banks and brokerages, economists’ median forecast was for a month-on-month rise of 0.53 percent in the CPI and a 0.66 percent rise in the PPI. The data showed manufacturing industry prices rose 0.97 percent in January year-on-year and farm prices gained by 1.90 percent. Timothy Ash, an economist at Bear Stearns, said the figures were a bit disappointing but not a great surprise, given the January religious holiday festivities and unusually cold temperatures which have pushed energy prices higher. «I think it was fairly well signalled by the Central Bank… It was quite an extraordinary month which made it hard to predict,» Ash said. Turkey imports most of its energy from its oil-rich neighbors. Iran experienced supply problems last month. The inflation data came after the close of Turkey’s financial markets. Shares ended down 1.37 percent, while bonds and the lira firmed. Turkey, which began long-sought European Union accession talks in October, has strongly rebounded from a 2001 financial crisis with the help of a tough International Monetary Fund-backed program. Inflation is in single digit figures for the first time in three decades and consumer confidence is back. Last week, the Central Bank left Turkey’s key interest rates unchanged at 13.50 percent for its borrowing rate and 16.5 percent for its lending rate, in line with market expectations. The bank, which cut rates nine times during 2005, said they were likely to remain stable in the short-term. «(January CPI) should certainly support expectations rates are unlikely to be changed through the first quarter,» Caroline Gorman of 4Cast analysts. The central bank launched a new inflation targeting policy in December and aims to end 2006 with a 5 percent rate, allowing itself to stray two percentage points either side of the target. To that end, the bank aims for year-on-year inflation of 7.4 percent at the end of March, within a range of 5.4-9.4 percent. The central bank has said year-end inflation was more likely to be above the target than below it. «We prefer to wait for February before jumping to conclusions, given the strong rise in food and recreation prices on holiday effects and the price rise of tobacco,» said analyst Simon Quijano-Evans at CAIB/Bank Austria. Fortis Bank said in a note it expected the central bank to resume cutting rates by 25 basis points from April and that they would stand at 11.75 percent by end-2006.

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