Food items boost Turkish CPI

ANKARA (Reuters) – Turkish October inflation came in above expectations after a spike in food and clothing prices, data showed yesterday, and analysts said it could slow but not threaten the central bank’s policy of cautious credit easing. The consumer price index (CPI) rose 1.81 percent month-on-month in October, official data showed, exceeding a Reuters poll forecast of 1.20 percent. The annual rise in CPI stood at 7.70 percent while the year-on-year increase in PPI was 4.41 percent, the data showed. The official end-2007 inflation target is 4 percent. Turkish Statistics Institute data showed the producer price index fell by 0.13 percent month-on-month against a median forecast rise of 0.45 percent. «The consumer prices were way above expectations… A 1.81 percent increase shows an increase in food and clothing prices and it will have a negative impact on rate cut expectations for the rest of the year,» said Muhittin Kuley, director of research at Orion Investment. Food prices jumped 3.41 percent and clothing prices by 8.22 percent month-on-month in October. Manufacturing industry prices rose 0.11 percent and agriculture prices increased 1.28 percent. An easing of price pressures had been expected in the service sector due to falling demand and a strong lira, which makes imports of key commodities such as oil less expensive. Turkey has shown great progress in slashing inflation in recent years from above 50 percent to single digits under a multi-billion dollar International Monetary Fund loan program. Interest rates The lira eased to 1.1860 against the dollar in after-hours trade from 1.1790 at the close of trade, before the inflation data. But traders said the market focused more on the core inflation figure, providing some support to the lira. «Today’s numbers mean that another 50 basis points rate cut on November 14 is now unlikely and the market will focus on a 25 basis points cut instead. Even a pause is becoming a possibility,» said Beat Siegenthaler of TD Bank Financial Group. Economists said the core inflation dynamics were still encouraging. «We would expect to see continued downward dynamics in core inflation as food prices probably will not pass through into core expectations, given this always happens at the time of Ramadan,» said Simon Quijano-Evans of UniCredit MIB. October included the Muslim fasting month of Ramadan rounded off by a public holiday. The festival traditionally sees a spike in food prices. Inflation developments are a key factor in determining the outlook for interest rates, which the central bank cut at its last monetary policy committee in mid-October. It reduced the borrowing rate by a larger than expected 50 basis points to 16.75 percent and the lending rate by 75 basis points to 21.50 percent, but signalled that its monetary policy would remain cautious. The bank expects inflation to continue falling.