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(Bloomberg) — Turkey’s annual inflation eased for a second straight month, though persistently high energy prices driven by the Iran war still loom large over the central bank’s year-end inflation forecast.
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Consumer-price increases came in at 31.75% in July in annual terms, down from 32.1% in June. The reading was below the median estimate of 31.9% in a Bloomberg survey of economists.
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On a monthly basis, consumer prices accelerated to 1.78%, up from 1% the month prior, signaling renewed upside price pressures.
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The economic fallout of the Middle East conflict continues to weigh on Ankara’s disinflation program, which the war’s outbreak effectively stalled. High oil and gas prices are particularly detrimental because Turkey is a major energy importer. Crude Brent shot up throughout much of July on the back of renewed fighting between the US and Iran.
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The central bank forecasts a year-end annual inflation rate of 26%, well below many economists’ predictions. It may update that figure in its next inflation presentation on Aug. 13.
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In response to the war, the monetary authority suspended repo funding and began lending from its costlier, overnight rate of 40%. It also introduced temporary tax measures to cushion the impact of higher fuel costs on consumers. The phasing out of those measures could negatively affect the inflation outlook, the central bank wrote in the summary of its July 23 policy meeting.
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Economists expect faster price increases in services, particularly education, throughout the rest of the year. Inflation in food and clothing — usually subdued in summer — is also likely to accelerate in the months ahead.
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Escalating Middle East tensions and renewed pressure on the lira keep risks skewed to the upside, according to Bloomberg Economics’ Selva Bahar Baziki. She expects a year-end annual inflation rate of 29.5%.
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