ELEMENTS AND RISKS THAT AFFECT INFLATION
Leading indicators indicate that the global economy is continuing to recover despite the slowdown. However, the ongoing geopolitical risks keep alive downside risks to global and regional economic activity and increase uncertainty.
Uncertainties in global food security, high commodity prices, increasing supply bottlenecks in some sectors, especially in the energy sector, and high transport costs are leading to an increase in producer and consumer prices internationally. The impact of high global inflation on inflation expectations and international financial markets is being closely monitored. However, central banks in developed countries believe that the rise in inflation could take longer than expected due to rising energy prices and a supply/demand mismatch. Within this framework, although monetary policy communications from central banks in developed countries diverge between countries due to differing outlooks for economic activity, the labor market and inflation expectations, central banks maintain their supportive monetary policy stance and stick to their asset purchase programs by reduce them.
Portfolio inflows into developing countries declined in line with risk appetite until the last week of March and thereafter rallied, led by equity markets. However, the volatility of long-term developed market bond yields and the trajectory of global financial conditions keep risks alive in relation to portfolio flows to developing countries. It is anticipated that the impact of these risks arising from portfolio flows to Turkey may be more limited given the current level of non-resident portfolio 3 positioning.
In the recent surge in inflation; Energy cost increases due to geopolitical developments, temporary effects of pricing far removed from economic fundamentals, strong negative supply shocks caused by global energy, food and soft commodity price increases continued to be influential.
Rising commodity prices, significantly amplified by geopolitical developments, and ongoing supply disruptions continued to weigh on producer prices in March, with annual producer inflation rising across all sub-groups, particularly in the energy sector. The negative effects of the high energy prices achieved became clear. Looking at monthly changes on a subgroup basis, the top positions during the period were Refined Petroleum Products, Construction Related Products, Metals, Power Gas Production & Distribution, Basic Pharmaceuticals, Tobacco and Food.
Capacity utilization and other leading indicators suggest that the domestic economy remains strong, despite regional differences, and that external demand is beginning to have a positive impact. Industrial production increased in February by a seasonally and calendar adjusted 4.4 percent compared to the previous month. This means that production rose on average by 2 percent from January to February compared to the previous quarter. While the monthly increase in output was spread across sectors, industrial production remained stronger in the exporting sectors. Industry sales indices also show that external demand continues to support industrial production. On the other hand, the January-February retail sales average declined compared to the previous quarter, indicating a slowdown in domestic demand momentum.
As of March, companies in the manufacturing industry are prone to invest for the next twelve months. Analyzing the domestic and foreign orders registered and companies’ future order expectations in the first quarter of the year shows that foreign demand continued on its strong course, while domestic demand lost momentum. Although card spending recovered over the February-March period, it actually showed a limited decline on a quarterly basis.
Developments in the labor market show a consistent outlook with economic activity. In February, the seasonally adjusted unemployment rate was 10.7 percent. As of February: Employment increased by 0.7 percent in the first quarter compared to the previous quarter. While the labor force participation rate fell by 0.2 points to 52.2 percent in February, the seasonally adjusted overall unemployment rate fell by 0.2 points compared to the previous quarter to 10.9 percent in the January-February average. Survey indicators and high-frequency data suggest that the positive outlook on the job market will continue.
The recent strong trend in energy imports has had a negative impact on the current account. While the current account showed a deficit of USD 5.2 billion in February, the annualized current account deficit increased by USD 2.7 billion to USD 21.8 billion. Preliminary foreign trade data showed that exports remained buoyant in March while imports rose on the back of high energy and commodity prices. In this framework, although there may be short-term regional export losses due to the hot conflict, it is observed that these losses are compensated by the increase in exports to other countries, thanks to the dynamic capacity of export companies and the flexibility of market diversification. Despite these prospects in the foreign trade balance, the positive trend in service sales continues to support the current account. While the share of sustainable components in the composition of growth is increasing, the risks from energy prices in the current account remain. It is important for price stability that the current account balance remains at a sustainable level.
#Central #bank #inflation #interest #rates
No comments:
Post a Comment