For days the Turkish Lira has been showing a really independent weakness (we already reported). The US Dollar (visible in the US Dollar Index) had fallen massively. That’s why Dollar vs. Turkish Lira could or should have fallen? But no, USDTRY has been rising for weeks. So the Lira is depreciating (chart at the end of the article shows USDTRY over the last 30 days). The market had been expecting for days that inflation in Turkey would rise to over 11% in December after 10.56% in November and 8.55% in October!
And now the December data is available. Because a few minutes ago the state statisticians in Ankara published their report. Turkey’s inflation rate (consumer prices) for December is 11.84%. So again a significant jump of more than one percentage point within one month. The consumer prices for alcohol and tobacco will rise by far the strongest by 43% compared to December 2018. But also really important sectors such as transport with +12.21% (oil price) and hotels with +13% increase strongly in Turkey. Food prices will rise by 10.89%. The following official chart shows the development since the beginning of 2018. After peaking at over 25% in autumn 2018, the inflation rate had fallen to 8.55% two months ago. But now the turnaround is underway.
In the near future it will be important whether President Erdogan continues to push the central bank in Ankara to lower the key interest rate further. With inflation rising at the same time, this would not be a good constellation for traders who are betting on a rising Turkish Lira. Currently the Lira exchange rate is not yet moving after the publication (current rate USDTRY at 5.97). However, unpredictable movements in the Lira have been seen on several occasions in recent months according to data from the Central Bank and the Statistics Office. Actually, this increased inflation offers space for a further depreciation of the Lira. But you never know. We are not making a recommendation here, but are simply monitoring current developments. Are traders pushing the Lira further downward according to these data? We will see.