Turkey's inflation slows as the trade deficit widens
Annual inflation eased to 31.75 percent in July as exports reached 25.6 billion, but faster import growth widened the trade deficit alongside the moderation in prices.
Economics & Markets··Midday
The annual rate fell while the monthly rise accelerated
According to TurkStat figures carried by Anadolu Agency, consumer prices rose 1.78 percent from June and 31.75 percent from a year earlier in July. The annual rate fell below June's 32.11 percent, and both monthly and annual readings were slightly lower than Anadolu's survey expectations. The monthly rise nevertheless accelerated markedly from 0.99 percent in June. The index was 19.86 percent above its level at the end of December and 31.90 percent higher on a twelve-month moving-average basis. The largest spending groups show how the pressure was distributed: annual prices rose 40.32 percent for housing, water, electricity, gas and other fuels, 37.53 percent for food and non-alcoholic beverages, and 30.83 percent for transport. Food added 8.94 percentage points to the annual rate, while transport contributed 5.22 points and housing 5.21. On the month, transport rose 2.59 percent, housing 2.25 percent and food 1.61 percent. The lower annual reading therefore arrived while the price level was still rising and monthly momentum had strengthened again.[1]
Record July exports did not narrow the deficit
Trade figures released the same day showed July exports rising 2.9 percent from a year earlier to 25.6 billion, the highest total recorded for any July. Imports, however, grew 5.2 percent to nearly 33 billion. Because imports expanded faster than exports, the monthly trade deficit increased 14 percent, from 6.46 billion a year earlier to 7.37 billion. The export-to-import coverage ratio fell 1.7 percentage points to 77.7 percent. Across the first seven months, exports rose 3.4 percent to 161.6 billion while imports grew faster, by 4.7 percent. The resulting gap widened 8.2 percent to 60.5 billion, and the coverage ratio declined from 73.6 percent to 72.8 percent. Annualised exports reached a new high of 278.6 billion, but annualised imports increased to 375.3 billion and the annualised deficit grew 9.5 percent to 96.8 billion. The export record therefore did not amount to an improvement in the external balance, because the import bill continued to grow more quickly over both the monthly and cumulative periods.[2]
The two releases show different pressures at the same time
Read together, the two July releases place easing annual inflation and a widening trade deficit inside the same economic picture. The price data show that the year-on-year rate slowed, but also that the monthly increase accelerated from June and that food, housing and transport retained large contributions. The trade figures show exports reaching highs on both the July and annualised measures, while faster-growing imports enlarged the gap. Neither result cancels the other. A falling inflation rate does not mean that prices fell, just as record exports do not mean that the external balance improved. Price increases across 117 of 174 subclasses describe the breadth of domestic pressure, while imports growing faster than exports over seven months describe the direction on the external side. The common feature of the midday picture is therefore the pressure continuing beneath favourable headline thresholds. Annual price growth is slowing and exports are rising, yet prices increased during the month and the trade deficit widened. The next readings will start from that combination rather than from a simple shift from deterioration to improvement.[1], [2]
