ECONOMY

Turkish inflation accelerated to 8.4 percent in November on fuel and tobacco tax increases

Turkish inflation accelerated for a second consecutive month in November, putting pressure on the central bank to slow a series of cuts to the benchmark interest rate. The annual inflation rate rose to 8.4 percent, the highest since June, from 7.7 percent in October, the statistics office said on its website yesterday. Prices were expected to increase 8.1 percent, according to the median estimate of 15 economists surveyed by Bloomberg. In the month, prices rose 2 percent. Higher costs driven by last month’s tax increases on fuel and cigarettes, coupled with plans by the government to increase power prices next year, may force the central bank to lower interest rates at a reduced pace. The Turkish rate of 16.25 percent is Europe’s highest. «The headline number was much higher than expected and I think this will affect the amount of easing by the central bank,» said Fatma Melek, an economist at Akbank TAS in Istanbul, Turkey’s biggest bank by market value. The central bank began cutting its benchmark interest rate in September and has reduced the cost of borrowing by 1.25 percentage points since then. It has cut rates by 0.5 percentage points in each of the past two months. The central bank is seeking to lower the inflation rate to 4 percent under an International Monetary Fund-backed loan accord. That target is already out of reach this year because of increases in fuel, tobacco and grocery prices. Bank caution Last week, the bank said a planned boost in charges for electricity is making it «relatively more cautious» about inflation and the pace of rate cuts. The price of gasoline jumped a monthly 8.7 percent in November, while tobacco and beverages rose 6.5 percent and housing, including utilities, added 4 percent. Transportation prices rose 2.5 percent, the agency said. Higher oil costs have already led the central bank to lift its inflation forecasts for this year and next. Consumer price growth will end 2008 at between 2.5 percent and 5.7 percent, Governor Durmus Yilmaz said on October 26, more than the range of 1.5 percent to 4.9 percent the bank had predicted three months earlier. The forecasts are based on the assumption that a «measured lowering» of the benchmark interest rate will continue into the «first months of 2008,» Yilmaz said. The government has said it plans to boost electricity prices in 2008 for the first time in five years to reflect the higher cost of oil and gas, and meet budget targets under its $10 billion agreement with the IMF. Expectations for inflation in 12 months’ time rose in the bank’s latest fortnightly survey of economists and businessmen. The inflation rate will reach 5.98 percent by November 2008, according to the November 22 survey. The previous survey had predicted a rate of 5.82 percent. Inflation in Turkey slowed from more than 70 percent at the start of 2002 to a 37-year low of 6.9 percent in July. It accelerated to 7.7 percent in October from 7.1 percent the previous month, the statistics office said on November 2. The cost of goods leaving Turkish factories and mines rose an annual 5.7 percent in November, compared with 4.4 percent the previous month, the statistics agency said yesterday. Producer prices increased 0.9 percent in the month.