I’ve mentioned many times that we should wait for September to see the negative impact of the basis effect disappear. So, I must admit that I wasn’t surprised at all when I saw July 2019 inflation rate. According to some, it turned out to be even lower than expected.
Some people were let down by the fact that annual inflation rate has once again exceeded 16%, which was originally caused by some heroic rumours or rather comments flying around. For instance, some did say that July 2019 inflation rate would encourage CBRT cut rates. I honestly don’t know how they come up with such conclusions. Yes, it may be fun to engage in rhetoric sometimes if you’re a social scientist, but inflation is a very serious matter that can directly impact each class of society. So, with a little bit mathematics and logic, everybody would figure out that prices would show an upward trend in July.
I talked to TV100 a few hours prior to the release of updated inflation data, and said, “Keep your expectations low”. Eventually, having turned out to be exactly as I expected; inflation figures show that Turkey still follows the CBRT’s route map. But, there’s still a chance that that inflation might start to show a downward trend.
“There may be no rate cut in September…”
I think CBRT will make its major decision about interest rates on October 24 because Monetary Policy Committee’s September 12 meeting will be held after the release of August inflation data. So, frankly, it would not be very realistic to expect a sharp decline in inflation in August 2019. Accordingly, no drastic decision will be issued from this meeting of the CBRT.
But, I can guess that CBRT will start taking a quicker rate cut action in October as we will hear more positive news about the inflation rate with the basis effect passes off. I’m sticking to what I’ve said after July rate cut: it’s still likely that 2019 will end with 17 percent policy interest rate.
By the way, we observe that electricity price hike have significantly affected July 2019 inflation, which means inflation rate would have remained at a more reasonable level if it weren’t for these price rises. I guess it should not take a fortune teller to predict that 15% natural gas price hike enacted earlier this month will cause August inflation rate to rise further. So, instead of September, I highly expect CBRT to cut rates in October.