Turkey's annual inflation rate increases in December

ANKARA

The annual inflation rate rose to 8.81 percent in December from 8.1 percent in November, the Turkish Statistical Institute reported on Monday.

Inflation rose 0.21 percent in December from the previous month, the report said.

The highest monthly increase was 1.24 percent in food and non-alcoholic beverages, the report said.

But food prices are expected to drop in the medium term. “Inflation could drop to about 8 percent in coming months, thanks to declining food prices in the wake of the Russian sanctions on Turkish produce,” commented Attila Yesilada, an economist with GlobalSource Partners, in Istanbul.

After Turkish forces shot down a Russian fighter which had violated national airspace after repeated warnings, the Russian government imposed sanctions on a large number of Turkish food exports.

The highest annual increase was 13.23 percent in hotels, cafes and restaurants.

Consumer spending continues to drive the Turkish economy. Household final spending is close to 70 percent of Gross Domestic Product, according to World Bank statistics.

But the Turkish central bank forecast moderate domestic spending in the coming year, while increased exports will play a greater role in driving Turkish economic growth.

"The composition of growth has shifted towards net exports with the support of rising demand from the European Union economies," the bank's Monetary Policy Committee said in its Dec. 22 policy meeting minutes. 

The central bank also predicted better price stability in the coming year, as the effects of previous currency volatility ceased to push inflation higher.  

And relatively low price increases from regulated services will also help future inflation to stabilize.

"Electricity price adjustment will help disinflation, even that sounds counter-intuitive. That's due the fact that the 6.8 percent adjustment was the lowest in recent years -- the increase was 9 percent in October 2014," commented Bora Tamer Yilmaz, an economist with Ziraat Securities in Istanbul, in a note published on Monday.

That relatively low increase in the price of electricity will have an important disinflationary effect, Yilmaz added.

"In sum, we may see about 21 basis-point inflationary efffect in the first six months of the year due to the announced administrative price adjustments," he said. However, he expected annual inflation to hit a peak during the January to February period.