CBRT has a challenging year ahead as in it will have to fight to maintain the credibility of an interest rate decision which will be made based on an unconvincing inflation rate.
We received the first signs of 2019 inflation rate from Istanbul Chamber of Commerce Cost of Living Index today. As you know, there is a simultaneous movement between Istanbul Chamber of Commerce Price Index and CPI figures. Even though this similarity can’t be seen so clearly, they usually tend to follow a similar trend.
The cost of living index for wage earners in Istanbul, which is the indicator of Istanbul Chamber of Commerce’s retail price movements, seems to have increased by 1.07% compared to November 2019, while the Wholesale Price Index has risen to 1.40%. So, I think we’ll have to lower our expectations for a decrease in December CPI index.
Obviously, we also need to see some of the items for which prices have risen: In December, prices of household goods increased by 1.74%, food prices by 1.55%, culture, education and entertainment services prices by 1.08%, house prices by 0.82%, and the prices of healthcare and personal care rose 0.75%. Although some of these hikes might be caused by increasing demand due to “holiday rush”, there are some groups of goods that have a direct impact on the cost of living as well. By the way, clothing, transportation and communication prices have decreased respectively by 0.44 % and 0.20% in Istanbul. Maybe this can help CPI turn out to be a little lower than expected.
“Signs from Wholesale Price Index…”
Although not quite parallel to PPI, there is a clear increase in wholesale prices, bringing direct impact on wholesale prices as well. When compared especially with the previous month, 2.67% increase in food items is quite noteworthy indeed. Other items on the list are: unprocessed raw materials 1.53%, construction and building materials 0.93%, fuel and energy materials 0.82%, ores 0.09%. While the only decrease (1.61%) was in chemical materials group, textile prices appear to have remained unchanged.
Accordingly, I expect CPI for December to turn out to be around 1%. Though not a much desired rate, CPI is projected at a little above or below 12% for 2019. Obviously, what we need for 2020 is a maximum inflation rate of 0.7%, rather than monthly rates around 1%. Otherwise, achieving single-digit inflation will be much more challenging than we anticipate, because in such case, CBRT’s intention for “achieving single-digit in cost of funding” would not be realized either.