Inflation falls in Turkey in July

04 Aug '15

3 min read

Turkey's inflation rate fell to 6.81 per cent in July from 7.2 per cent in June, according to the latest inflation report of the Turkish Central Bank.

The Consumer Price Index saw a 0.39 percentage point decline in July from June.

Although inflation decreased on lower food prices in the second quarter of 2015, the accompanying depreciation of the Turkish lira caused core inflation to rise, delaying the desired improvement in the inflation outlook. The prospective partial improvement in food prices and the cautious monetary stance will help to minimize the deterioration of the inflation outlook.

The bank said global financial markets remained volatile in the second quarter of 2015, which was attributed to the continued divergence among global monetary policies, the uncertainty surrounding the Federal Reserve (Fed)'s normalization plans and developments regarding the Greek debt crisis in the EU.

The bank's Overview of Inflation Report July 2015 says that in this period, the volatility in long-term rates has reached quite high levels, especially across advanced economies, which also affected emerging-market rates. Thus, portfolio flows to emerging markets weakened.

The global economic slowdown of 2014 continued into the first quarter of 2015 largely due to emerging economies. Despite signs of economic recovery in Europe, geopolitical tensions continued to restrain Turkey's external demand.

The volatility across global markets had implications for the Turkish economy as well, causing fluctuations in financial indicators amid domestic uncertainty. In this period of heightened volatility in long-term interest rates of advanced countries and added interest-rate sensitivity in emerging economies, the interest-rate corridor and the tight liquidity policy implemented by the Central Bank played a major role in shielding the economy against global shocks. Moreover, the bank's structural and cyclical measures supporting foreign exchange liquidity, core liabilities and long term borrowing strengthened the economy's resilience

The growth in economic activity during the first quarter of 2015 was mainly driven by consumption spending. In this period, exports of goods and services increased quarter-on-quarter whereas imports decreased, thus helping net exports contribute positively to quarterly growth. Indicators for the second quarter suggest that economic activity continues to grow moderately. The global economic slowdown and geopolitical problems cause external demand to remain weak while domestic demand provides a moderate contribution to growth. Therefore, economic activity is expected to follow a moderate and gradual growth path in the upcoming period, the report said. (SH)

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