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Turkey jolted by 'electric inflation'

The Turkish economy could be in for a short sharp shock over the next few months.

According to the Turkish Central Bank (TCB), large hikes in electricity prices could conceivably push consumer price inflation (CPI) up 0.5 percentage points.

In its regular monthly statement on inflation data, the bank reiterated that it expected inflation to remain high due to base effects before falling gradually from the fourth quarter.

Turkish consumer prices showed a surprise fall in June due to a sharp decline in food prices. The figures are unlikely to have an impact of expectations of further interest rate hikes to come.

The consumer price index fell 0.36 percent month-on-month in June, despite market expectations of an increase, taking a year-on-year increase of 10.61 percent.

Energy and food prices have driven a recent rise in inflation but the central bank said there had been a correction in unprocessed food prices in June.

The Turkish government last week had approved a 22 percent hike in electricity prices for industry starting from July 1. It also approved a 21 percent rise in residential and commercial power prices.

Turkey started to use an automatic price mechanism in electricity prices, meaning further increases are likely to come.

A spokesperson for the TCB commented: "It is expected that annual inflation will remain high in the coming months due to base effects and that it will gradually enter a falling trend from the fourth quarter".