ISTANBUL (Reuters) – Turkey’s monthly inflation rate is expected to be 2% in May, impacted by higher clothing and fruit prices, with the annual rate seen falling to 36.1%, a Reuters poll showed on Wednesday.
Economists said a rise in fruit prices due to agricultural frost and a new season in clothing will be the main drivers of May inflation as well as automotive prices, which are directly impacted by currency volatility.
The median estimate of ten economists showed monthly inflation dropping to 2% from 3% in April. Forecasts ranged from 1.85% to 2.75%. Year-on-year, inflation is seen sliding to 36.1%, with forecasts ranging between 35.8% and 37%.
Turkey’s statistics institute predicts fruit production will fall around 25% this year due to frost.
“May is a month of clothing price hikes, so we predicted a monthly increase of around 5%, but we may see an upward risk in clothing,” said Hande Sekerci, chief economist of Is Portfoy.
Sekerci said that due to discounts in some items the moderate course in food prices was continuing despite recent frosts and that core inflation will follow a more positive path in May with household goods, health and housing items on a calm course.
In March, Turkish assets suffered, with the lira touching a record low against the U.S. dollar after Istanbul Mayor Ekrem Imamoglu – Erdogan’s chief political rival – was jailed pending trial, over graft charges that he denies.
The market volatility was stabilised by a central bank rate hike and liquidity steps. The central bank sold some $57 billion in foreign currency and took steps to tighten policy by 700 basis points.
The central bank has bought some $13 billion in forex to rebuild reserves in the last three weeks, while it kept the overnight interest rates in the market at 49%, the upper band of its rate corridor.
Last week, the central bank kept its year-end forecasts steady in its quarterly inflation report saying upward and downward risks to inflation balance out. Governor Fatih Karahan said the bank is ready to tighten policy if inflation worsens.
Inflation is seen dropping to around 30% at the end of this year according to the poll median, higher than the central bank forecast of 24%. Following the volatility and its impact on inflation due to FX-pass through, economists have revised up year-end inflation forecasts since March despite steps taken by the central bank.
The low course of global energy prices amid trade war concerns was the main factor limiting upward revisions in inflation, and the year-end estimate in this poll period was revised slightly downwards.
The Turkish Statistical Institute will release May inflation data at 0700 GMT on June 3.
(Reporting by Ezgi Erkoyun; Editing by Daren Butler)
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