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  • Emerging Markets Debt Daily

    Turkey Disinflation Comes to a Halt

    Natalia Gurushina, Economist, Emerging Markets Fixed Income
    December 03, 2019

    A base effect reversal pushed Turkey’s inflation higher in November. Brazil’s growth outlook is brighter after Q3 GDP surprise.

    Turkey’s inflation jumped higher in November—mostly due to a reversal in the base effect (see chart below). Core prices, however, rose more than expected, with yearly growth accelerating to 9.25%. In theory, the central bank (CBRT) should pay attention to this pickup in underlying inflation pressures. However, growth is clearly a priority right now, so the CBRT might go for another sizable rate cut next week (while core inflation is still in single digits), but slow the subsequent pace of easing as inflation will continue to creep higher at least until February.

    Brazil’s growth story got an extra boost this morning, following a sizable upside surprise in Q3 GDP (gross domestic product). The quarterly growth accelerated to 0.6%, driven by the industrial sector and investments (a welcome structural signal). Private consumption also continued to expand on the back of lower interest rates. It is concerning that the most recent political—and geopolitical—noise disrupted Brazil’s reform pipeline (with several key pieces of legislation pushed into 2020). Still, the near-term growth outlook is brighter—and we can only hope the government regroups and uses this moment to lift the potential growth trajectory as well (meaning pro-growth reforms).

    South Africa’s GDP fell short of expectations once again, barely staying alive above zero in Q3. At this stage, I do not know what else to say. The government is in denial, hoping for the best, but failing to (properly) address the most pressing issue—the fact that the state-owned utility Eskom is beyond dysfunctional and should be reformed/unbundled/etc. Meanwhile, load-shedding continues, pointing to further growth downside in Q4 (with all the ensuing consequences, including a wider fiscal gap).

    Chart at a Glance: Turkey—Inflation Jumps Higher on Base Effect Reversal

    Turkey CPI YoY

    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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