UPDATE - Turkey's annual inflation climbs 11.9 pct in October

UPDATES WITH COMMENTS FROM ANALYSTS

By Muhammed Ali Gurtas

ANKARA (AA) - Consumer prices in Turkey rose 11.90 percent in October year-on-year, the Turkish Statistical Institute (TurkStat) said Friday.

The October figure was up from 11.2 percent in September.

Last month, change in the consumer price index was a 2.08 percent increase on a monthly basis, a climb from 0.65 percent in September, official data showed.

"In October, the highest monthly increase was 11.51 percent in clothing and footwear," TurkStat said.

The monthly rate of change in consumer prices for furnishing and household equipment was 2.96 percent while it was 2.61 percent for transportation, the institute noted.

Among the main expenditure groups, the highest monthly decrease was in recreation and culture with a 1.75 percent decline, TurkStat said.

On a yearly basis, the highest inflation was seen in transportation prices -- up 16.79 percent -- and food and non-alcoholic beverages which went up 12.74 percent.

"Miscellaneous goods and services with 12.63 percent, health with 12.21 percent and furnishing and household equipment with 11.65 percent were the other main groups where high annual increases [were] realized," TurkStat said.

On Wednesday, Turkey's Central Bank revised up its end-year inflation forecast from 8.7 percent to 9.8 percent amid increasing oil prices and depreciation in the Turkish lira.

According to the bank, the inflation rate will fluctuate between 9.3 percent and 10.3 percent through the end of 2017.

The U.S. dollar/Turkish lira exchange rate rose by nearly 5.6 percent in October, compared with the previous month. The average dollar/lira exchange rate was 3.66 last month and 3.47 in September, while the 10-month average rate was 3.61.

Since the beginning of this year, annual inflation saw its lowest level in January -- 9.22 percent -- and hit the highest level at 11.90 in October.

The country's medium-term program, which was announced on Sept. 27, set an annual inflation target of five percent in 2020, down from 8.5 percent in 2016.

- Currency fluctuations

"An upward movement in consumer prices was already expected by the markets, following the mid-week statements of the central bank," Ozlem Bayraktar Goksen, chief economist at Tacirler Investment, told Anadolu Agency.

"The annual inflation rate in November will probably be around 12 percent, higher than current level," she said, pointing to currency fluctuations as the major reason behind the upward trend in consumer prices.

"Our end-year inflation forecast is around 10.3 percent, the upper boundary of the central bank's estimation, and 8.6 percent for the end of 2018," she said, adding:

"If the fluctuations in currency markets continue like this, new revisions to inflation targets will be needed."

Erol Gurcan, investment advisory manager at Gedik Investment, said the central bank's intention was to maintain tight monetary policy -- to hold price stability -- until inflation outlooks display significant improvement.

"But, we think that this emphasis could not persuade the markets sufficiently," Gurcan said. "The movements of the currency and interest rates verifies this situation."

Gurcan predicted the consumer price index would decline, starting from the end of this year through to mid-2018 due to the positive base effect.

"However, inflation expectations will deteriorate, as the volatility of the Turkish lira and interest rates continue to create risks to restrict the positive base effect," he said.

Gurcan added that the possibility a single-digit year-end inflation rate has disappeared with the latest TurkStat data.