UPDATE 2 Turkish inflation reached 25% in October, its highest level in 15 years

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By Ali Kucukgocmen

ISTANBUL, Nov. 5 (Reuters) – Turkey's annual inflation jumped to 25 percent in October, according to official figures released Monday, reaching its highest level in 15 years and underscoring the lasting impact of the year. a monetary crisis while the economy at large slows down.

From one month to the next, consumer prices jumped 2.67%, according to data from the Turkish Institute of Statistics, which is higher than the expected 2.0% by the Reuters poll.

Following a fall in the lira, the government has reduced its growth forecasts and investors believe that Turkey could record negative growth in GDP in the coming quarters, discouraging any initiative by the central bank to raise its rates in response to high inflation.

"I think the CBRT would be reluctant to have to raise its key rates if inflation data continued to disappoint, as this would only worsen the recession," said Timothy Ash, strategist at Blue Bay Asset Management. .

"They will presume, rightly, that deflation and recession will eventually affect inflation. But they need time.

The reading weakened to 5.4740 against the dollar at 0820 GMT, against 5.43 previously. The currency has recently recovered some losses resulting from a massive sell-off motivated by concerns about the central bank's ability to respond adequately to rising inflation and deteriorating relations with Washington.

Producer prices rose 0.91% over one month in October, an annual increase of 45.01%. Underlying inflation increased by 24.34 a year.

October's inflation was fueled by a monthly rise of 12.74% in the price of clothing and footwear and a 4.15% increase in the price of housing, the data showed.

Increase in inflation

Last month, the Turkish central bank left its key rate unchanged, after a sharp rise in September and the easing of tensions with the United States, which allowed to gain ground.

The rise in inflation in October means that the real interest rates of the central bank – the level once price increases have been taken into account – have been pushed further into negative territory, another subject of investor concern.

In the minutes of its last rate setting meeting, the central bank stated that it would be more sensitive to incoming data in the near term and that its policy would be revised as soon as changes were made to the outlook. ;inflation.

The continued rise in inflation may also give rise to skepticism about the effectiveness of the government's measures to control inflation.

Finance Minister Berat Albayrak announced a "full fight" against inflation in October, calling on all companies to offer 10% cuts on products impacting inflation until the end of the year. at the end of the year.

Last week, he also announced a reduction in the consumption tax on furniture, appliances and motor vehicles, which, according to economists, would reduce end-of-year inflation. about 1%.