Turkey’s key inflation gauge fell to 11.86% in March as expected as a drop in global oil prices provided some relief after four consecutive months of rises, the Turkish Statistical Institute said on Friday.
In February, year-over-year consumer price inflation was 12.37% and it has remained lofty after a decline through much of last year.
A Reuters poll forecast it would come in at 11.85% last month.
Turkey is almost entirely dependent on imports to meet its energy needs and a global drop in prices last month led to a 1.91% decline in transportation-related prices.
The coronavirus pandemic is expected to dramatically slow economic activity in Turkey and around the world, and could further ease inflation in the months ahead.
On the other hand, a slide in the lira could keep import prices elevated.
The lira fell around 2% on Friday to 6.7450 against the dollar by 1622 GMT, its weakest since August 2018.
It has shed more than 11% this year as the fallout from the coronavirus hit financial markets.
“Inflation should still fall in the coming months because those disinflationary forces are going to be potentially much stronger than the negative impact on inflation coming from the weaker currency,” said Piotr Matys, senior emerging markets forex strategist at Rabobank.
A currency crisis in 2018 sent Turkish inflation surging to a 15-year high above 25% before it eased and briefly touched single digits last year.
In turn, the central bank slashed interest rates to 9.75% from 24% in July.
The bank has predicted inflation will drop towards 8.2% by year-end, but it could lower that forecast after saying last month cheaper energy affected the outlook “favourably.”
Matys said however the central bank “may have limited room to cut rates further as the lira continues to weaken.” Month-on-month, consumer prices rose 0.57% in March, compared to a poll forecast of a 0.55% rise.
The producer price index rose 0.87% month-on-month for an annual rise of 8.50%, the data showed.
Overall, inflation was driven by health sector prices which rose 2.78% month-on-month, while food and non-alcoholic beverage prices were up 1.95%.
The price of Brent oil has fallen to below $25 per barrel from $72 this year, leading Turkey to cut petrol prices by 1.5 lira in March, and diesel oil prices by around 1 lira.
Separately on Friday, the cost of insuring exposure to Turkey’s sovereign debt soared to its highest since the 2008 global financial crisis as concerns over the coronavirus fallout weighed. Turkey CDS reached 631 basis points.
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