A fuel tax hike in Turkey on Thursday is expected to push annual inflation up by 0.4 percentage points, adding to a steady rise for seven months, according to economists, keeping up pressure on the central bank to maintain a tight policy for longer.
Turkey raised the special consumption tax on some petrol and diesel oil types, liquefied petroleum gas, propane and butane by between 54-189%, prompting hikes in pump prices.
The tax on 95 octane petrol was raised to 1.3313 lira per litre from 0.8652 and to 1.5836 lira from 1.0283 lira on 98 octane petrol, the country's Official Gazette said.
The tax on diesel oil was raised to 1.2931 from 0.7253 lira per litre and to 0.8107 lira from 0.2810 for LPG.
The Energy Petrol and Gas Supply Stations Employers' Union said pump prices were raised, with petrol rising by 0.55 lira per litre, diesel oil by 0.67 lira and LPG by 0.35 lira.
Six local economists who spoke to Reuters estimated the tax hikes would lead to a 0.4 percentage point annual inflation rise over time, after it hit 17.14% in May, the highest in two years.
"Incrementally, any price hikes administered are going to compound the domestic upward pressure on inflation and also lead to expectation deterioration of market participants," said Phoenix Kalen, head of emerging markets research at Societe Generale.
"This will continue to be a problem for investors looking at Turkey's picture and seeing that there is no near-term containment of inflation expectations."
The central bank has kept its policy rate at 19% since March and dropped a pledge to maintain tight policy in the statement following this month's monetary policy committee meeting.
Economists took that as a signal that the central bank is preparing to cut rates in coming months, but high inflation may prevent it from doing so.
The central bank, seen as under political pressure to cut rates, expects inflation to peak in April, but some economists say it could rise further in May or even June.
"In this inflation environment, a rate cut would only be possible in the final quarter and the central bank made a similar statement at the last MPC meeting," one forex trader said.
"But we know the politics side looks warmly on earlier cuts. Therefore we cannot exactly make out how the market will be shaped," the person said.
Reuters reported in January that the government had been raising taxes and prices this year only on items that would have a limited impact on inflation. Thursday's hike is the first this year that is likely to significantly push inflation higher.
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May 20, 2021 at 04:24PM
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Turkish fuel prices rise as special consumption tax hiked - Reuters
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