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Turkey's annual consumer price index has declined slightly in relation to 19.71% in march at 19.50% y / y in April, Turkish Statistical Institute (TUIK) said on May 3. The official rate of inflation in April was therefore at its lowest point since the 17.9% recorded last August.
A Reuters poll predicted that headline inflation for the fourth month would rise to 20.33% yoy.
April official inflation data also showed that food inflation, with the largest basket weighted by the CPI (23.29%), had risen further, from 29.77% in March at 31.86%, despite better weather conditions for agriculture.
Listed inflation of alcoholic beverages and tobacco, which represents a 4.23% weighting in the basket, went from 2.71% in March to 9.66% in April. big tax hikes.
Official health care prices rose at an annual rate of 19.75% in April, up from 19.72% in March. The Ministry of Health increased the fixed exchange rate of imported pharmaceuticals by 26.4% last month. Health care prices have the second lowest weighting, or 2.58%, in the inflation basket.
Official freight rates, which represent the second weighting, 16.78%, rose 12.55% in April, while official housing and utilities prices, which represented the third weight, were 15.16%. , rose 15.31% year-over-year.
Non-visible impacts
The average price of 42 items in the basket of 418 items corresponding to TUIK inflation remained unchanged, while those of 294 items increased and those of 82 items declined. It is worth noting that official data indicate a widespread rise in the prices of CPI basket items, but the repercussions are not visible in the overall inflation figure.
The official rise in domestic producer prices (PPIs) in April edged up for a second consecutive month after five consecutive months of declines. The IPP was recorded at 30.12% y / y, higher than the 29.64% y / y observed in March, TUIK said in a separate press release. The official PPI reached its highest level in April since the 32.93% recorded in January.
Official PPIs for electricity and gas rose 57.87% in April, while official PPIs for energy increased 47.55%.
The increase in input costs in April is the highest recorded since last October, IHS Markit announced May 2 in its press release the April Purchasing Managers' Index (PMI). for Turkey. In turn, the producer price inflation rate also reached its highest level in six months.
Turkey's official PPI was 45.01% y / y in October and 38.54% in November.
Obligations now "cheap"
The slowdown in Turkish inflation has allowed Liberian lira-style government bonds to become "cheap" for the first time this year, Christian Wietoska of Deutsche Bank said on May 3 following the release of the data. inflation in April. according to Reuters.
The models of the German bank announce potentially huge gains, added Wietoska and his colleagues in the badysis. Deutsche noted that for the first time this year, 10-year bonds denominated in local currency were actually inexpensive in Deutsche's bond valuation model.
The "fair value" of Deutsche's model for government bond yields was now 19.10%, compared to 19.50% for the current market.
With its end – of – year guidance for 10 – year bonds at 16.0%, Deutsche now has an excess return of 7.2% by the end of the year (yield of 25.7% in local currency against an implicit return of 18.5% in currencies by the end of the year).
This is the highest expected 9-month return for all emerging markets, which Deutsche has seen in its modeling in over 12 months.
At the same time, a Deutsche note added that tax and economic developments, recapitalizations in the country's banking sector, and changes in foreign currency and portfolio deposits were key elements to watch.
"Without improved confidence, it will be difficult to see the reversal of portfolio flows despite a valuation of local badets now considered inexpensive," said Wietoska.
Ideal world if …
There could indeed be an ideal world if we could rely on the official data of authoritarian regimes and avoid all political and geopolitical risks, and if the regimes in question refrained from manipulating their currency and interest rates.
"Some will focus on the degree of accuracy or realism of these inflation figures," said Timothy Ash of BlueBay Asset Management. Ash recently became a clear critic of the Turkish government after defending it from September to March.
The Turkish news service Reuters recalled that the former head of the Ministry of Energy, Yinal Yagan, who had been transferred to TUIK following the sharp rise in inflation observed last September, was appointed head of TUIK last month.
The "significant decline" in annual underlying inflation, from 17.53% the previous month to 16.30% in April, as well as a drop in food prices over the course of the year. 39, summer, have shown that Turkey would reach its inflation targets, said the Turkish Minister of Finance and former Minister of Energy. Berat Albayrak, son-in-law of Turkish President Recep Tayyip Erdogan, said on Twitter.
"The messages of the Turkish central bank to investors have become even more confused during the past week", Jason Tuvey of Capital Economics said May 3 in a research note.
"The decline in inflation will be welcomed by the central bank … But the central bank has little credibility and its communications are more and more confused. Be that as it may, recent experience shows that any policy change will depend to a large extent on the evolution of the reading. There are a number of potential hotspots on the horizon, including growing tensions with the United States and lingering arguments over the outcome of recent local elections in Istanbul, "Tuvey said in a research note. separate entitled "Inflation decreases, but the possibilities for policy easing are limited".
In this context, Capital estimates that even though inflation is still decreasing, policy easing measures will be limited this year. "Mbadive sales to the lira could lead to periodic crises of monetary tightening, most likely through the use of the" corridor "rates," he said.
"Wishful thinking
On April 30, Julian Rimmer of Investec issued a note to investors regarding the latest central bank inflation report. He said: "The Central Bank of Turkey has given everyone a boost [on April 30] promising that, contrary to all expectations, inflation would still fall to 14.6% at the end of the year, while it exceeded 20% for the first third of the year. My degree was English and not mathematical ("I can not make huge sums, sir," will be one of the many heartbreaking quotations from the biopic of my so-called career in the city), but I think it requires a remarkable price action between now and the end of the year to reach. I do not blame [the central bank governor Murat] Cetinkaya to be let go to what is wishful thinking, but if he thought that would reverse the seemingly inexorable decline of the read, he is mistaken unfortunately. Yet, we know it, we just tell him to pronounce the words that his president gave him and [the president’s] beautiful son.
"Cetinkaya also gave a pbadable imitation of Hansel and Gretel by going back on his statement after the statement of the MPC last week in which the falconer tongue had been suppressed. He reinstated him [on April 30] but the net effect of his hokey-cokey money is simply to further diminish the already depleted credibility reserves. Cetinkaya also added that reserves could build up very quickly, but I also think that commission revenues are expected to increase significantly in May after the most cruel month of April. I would like that to happen, but it will not happen.
"Unfortunately, Turkish companies that desperate to never be listed on a market that rewards bottom-up badysis, generally get very credible results. [Garanti Bank]The first quarter was laudable, they achieve a high ROE and manage their commitments with such success, but unless the lira changes direction, it will struggle to find buyers. P / bv now 0.64x. It is clear that if the motto turns, what action should be bought immediately. [Arcelik] has also produced a fabulous set of results in a lousy consumer economy and has even increased forecasts. Mgmt here is totally on top. I still do not want to buy it yet.
In a research note entitled "Three key points on the latest sell-off of the emerging currencySaid Edward Glossop of Capital Economics on April 30: "In Turkey, political risks are multi-faceted, but they are all linked to the deterioration of policy-making under President Erdogan's presidency. [the Argentine peso and Turkish lira] are vulnerable to investor risk aversion as external positions remain weak.
"While the monetary crisis of last year had led to an improvement in the current account position, the two countries still have large gross external financing needs due to high debt levels in the short term. In addition, there is a clear risk that falling money will exacerbate political risks by maintaining high inflation and weak economies … While the Turkish lira and the Argentine peso have already fallen sharply in real terms over the past year. The past year, high inflation, large external financing needs and political risks make sure that they will probably be harder hit than others. "
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