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  • Emerging Markets Debt Daily

    Turkey Inflation – Too High For Comfort

    Natalia Gurushina, Chief Economist, Emerging Markets Fixed Income Strategy
    October 05, 2020

    Turkey inflation is stuck in a high range, which might require further policy tightening. Mexico’s new infrastructure package failed to dispel growth concerns.

    Turkish inflation was lower than expected across the board in September. However it remains stuck in a fairly high range (see chart below). Yearly headline inflation barely moved (11.75%), and core inflation rose to 11.32%.  The recent policy rate hike might have a cooling effect on inflation, especially if it is followed by additional policy tightening. This is an important aspect, because as of right now the real policy rate is still negative – which is hardly enough to cushion the currency and reduce the inflationary impact of depreciation.

    Thailand is on a different end of the Emerging Markets (EM) inflation spectrum – headline deflation deepened in September (-0.7%) and an upside surprise in core inflation was miniscule. Improving high-frequency data, however, suggest that domestic activity is improving, and this can justify the central bank’s wait-n-see approach despite low prices. An additional consideration is that the central bank will have a new governor at the helm – and pushing the key rate closer to zero might not be his immediate priority.

    Mexico’s consensus 2020 growth forecast is one of the weakest in the region (-10%), and the latest consumer confidence print - with no V-shape rebound in sight – suggests that risks are still to the downside. The announcement of the infrastructure/energy package did little to dispel growth concerns. Even though the package looks sizable (39 projects worth USD13B), investors might want to wait for further details and announcements, and this can push execution to 2021 and beyond.

    Chart at a Glance: Turkey Inflation – Stocky Despite Downside Surprise in September


    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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