Consumer price inflation rose to a stronger than expected 15.4% y/y in June, up from 12.2% in May. The large price components food inflation (up from 11% in May to 18.9% in June) and transportation inflation (up from 20% to 24.3%) added +1.8pp and +0.8pp to the headline figure in June, respectively. The substantial rise in inflation in June reflects the TRY sell-off in May as well as much higher oil prices than a year ago. Although the TRY had stabilized in June, it was down -30% y/y against the USD (-34% y/y vs the EUR). And the average oil price in June was up by +60% y/y. The size of the increase in inflation in June is likely to trigger another sizeable interest rate hike at the next meeting of the Monetary Policy Committee (MPC) on 24 July, following the cumulative 500bp rise between end-April and early June. Failure to raise interest rates would prompt renewed concerns about the MPC’s independence. Meanwhile, the Manufacturing PMI inched up to 46.8 points in June (from 46.4 in May) but remained well below the 50.0 threshold that separates growth from contraction, thus indicating a marked overall deterioration of the sector in the coming months.
