Turkish Inflation Unexpectedly Slowed to 4 Percent in March

By Ali Berat Meric and Steve Bryan

(Updates with economist comment in fourth, eighth paragraphs, shares in fifth.)

April 4 (Bloomberg) — Turkey’s inflation rate unexpectedly fell in March, extending a historic low and backing the central bank’s case for keeping interest rates on hold.

Inflation slowed to 4 percent, the lowest since July 1970, from 4.2 percent a month ago, the state statistics agency in Ankara said today on its website. The median estimate of seven economists surveyed by Bloomberg was 4.4 percent, and none forecast a slowdown. Prices rose 0.4 percent in the month.

Governor Durmus Yilmaz, who steps down this month, has kept the one-week repo rate unchanged at 6.25 percent since January, even while warning that inflation may accelerate. Rather than hike the benchmark, he has increased reserve requirements for banks, reducing the amount of money they can lend in a bid to curb domestic demand.

“This is excellent news for the central bank, it provides credibility and breathing room for a bank that seems determined to stay on hold,” Yarkin Cebeci, an Istanbul-based economist for JPMorgan Chase & Co., said in a telephone interview. “Headline and core inflation were lower than expected and food prices remain benign.”

The main ISE National 100 share index rose 0.3 percent at 10:30 a.m. in Istanbul. The lira weakened 0.2 percent to 1.5328 per dollar.

Food prices fell 0.4 percent in the month, while transport costs rose 1.6 percent, according to the statistics agency.

Energy Prices

Yilmaz said Feb. 25 that surging global energy prices are likely to mean a higher year-end inflation rate than the bank’s 5.9 percent forecast. The economy expanded an annual 9.2 percent in the fourth quarter, driven by a boom in domestic demand that the bank is trying to slow through limits on bank loans.

The measure of core inflation the bank follows, which excludes energy and grocery prices, was unchanged at 3.8 percent. The bank has forecast that core inflation will approach the headline rate over the coming months.

Today’s figures will “help inflation expectations improve,” Tevfik Aksoy, chief economist for Turkey, the Middle East and North Africa at Morgan Stanley in London, said in a telephone interview. “Only transport had a noteworthy rise.”

The cost of goods leaving Turkish factories and mines rose 10.1 percent in the 12 months through March, compared with 10.9 percent the month before, the statistics agency said today. Producer prices gained 1.2 percent in the month.

–Editors: Ben Holland, Karl Maier.

To contact the reporters on this story: Steve Bryant in Ankara at [email protected]; Ali Berat Meric in Ankara at [email protected]

To contact the editor responsible for this story: Andrew J. Barden at [email protected].

www.businessweek.com, 04 April 2011