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  • Emerging Markets Debt Daily

    Turkey Inflation Mystery Deepens

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    May 03, 2019

    A big downside surprise in Turkey’s inflation was not in line with reported price changes in major cities, raising concerns about data “adjustments”. Brazil’s growth outlook remains soft, albeit the recent acute weakness was due to transitory factors.

    Turkey’s prices moderated significantly more than expected in April.
    Yearly headline inflation eased to 19.5% and core to 16.3% (see chart below), in part due to a smaller nationwide increase in food prices. However, many commentators noted that this was not in line with larger price moves in major cities and that several other seasonal price increases also looked smaller. So, while today’s release looks consistent with the central bank’s decision to drop its tightening bias at the last meeting, there are concerns that the data may have been “massaged”.

    The latest industrial production print in Brazil looked plain ugly. The industrial output contracted 6.1% year-on-year in March, significantly more than expected. Some of the reasons appear transitory—like the collapse of a dam operated by Vale, or the timing of Carnival. Still, today’s numbers—which come on the heels of two consecutive monthly declines in the manufacturing activity surveys—show that growth risks remain to the downside, including the possibility of a negative sequential real gross domestic product growth in Q1. For now, the market does not expect the central bank to relax its policy stance in response to these developments. Challenges facing Brazil and other emerging markets were discussed extensively at the International Monetary Fund’s Spring Meetings in Washington, D.C.—for more information, please read the report published by Portfolio Manager Eric Fine:

    The market’s reaction to a very strong non-farm payrolls number in the U.S. (236K in April) was short-lived. One explanation is that the labor market report sent a mixed message. The rate of unemployment dropped to a mere 3.6%, but the average hourly earnings growth undershot consensus, staying unchanged at 3.2% year-on-year and pointing to limited inflation pressures from this source. At the same time, the participation rate continued to decline, and this may potentially send wages higher—but not in the immediate future.

    Chart at a Glance

    Turkey Inflation

    Source: Bloomberg LP


    PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

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