Core inflation increased from +15.1% Y/Y in July to +17.2%, above the +16.0%expected, and contributed 1.2% to the overall 2.1% rise in the headline figure and more than fully accounted for the surprise in headline inflation compared to forecasts. Following the hike to electricity and natural gas prices, energy inflation contributed another 0.5%. The rest of the increase in headline inflation was due to higher gold and food prices.

As shown in the Goldman chart below, inflation in nonfood goods and energy categories were the main drivers behind the rise in the headline figure.

Looking ahead, Bloomberg economist Ziad Daoud said that Turkey’s year-on-year inflation is likely to jump to 19.1% in August, showing the initial economic impact of the recent meltdown in the lira.

Meanwhile, producer prices soared 32.1%, Turkstat reported on Monday: the PPI’s nearly double increase vs CPI confirmed that companies are finding it next to impossible to pass on much of their added costs to end-users just yet, but eventually they will have little choice according to Bloomberg.

According to Bluebay Asset Management strategist Tim Ash the inflation data showed consumer demand collapsing, and it could weaken further if borrowing costs are raised. Still, “if they don’t hike again by something significant, the lira will be left exposed again,” Ash told Bloomberg. “They need to do whatever they need to do short-term to hold the lira, and that means hiking rates.”

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