Evelyn Reynolds

The country’s central bank sent a directive to lenders, effective Friday, instructing them to put parts of their required lira reserves into blocked accounts.
That’s pushed loan rates up higher and cut the sizes of some banks’ loan limits.
“Some banks have stopped lending. Some banks even recall their already granted loans. This is going to cause further liquidity squeeze,” one Istanbul-based economist told CNBC. 

A picture taken on August 14, 2018 shows the logo of Turkey’s Central Bank at the entrance of its headquarters in Ankara, Turkey.
ADEM ALTAN | AFP | Getty Images

Turkey’s central bank is opting for a different monetary tightening method as it grapples with climbing inflation, after previously signaling that its rate-hiking cycle was over.
The institution sent a directive to lenders, effective Friday, instructing them to put parts of their required lira reserves into blocked accounts.

That’s pushed loan rates up higher and cut the sizes of some banks’ loan limits, with some lenders shrinking their commercial loan limits to 100,000 lira, or $3,100, Reuters reported Thursday.
“Some banks have stopped lending. Some banks even recall their already granted loans. This is going to cause further liquidity squeeze,” Arda Tunca, an Istanbul-based economist at PolitikYol, told CNBC. 
“If a central bank is willing to reduce the rate of inflation, liquidity conditions should be squeezed for sure, but the methodology is of utmost importance,” he said. “If the methodology is wrong, market expectations can’t be managed.”
Indeed, Turkish bank stocks dipped after the news Thursday. Economic data platform Emerging Market Watch posted on X, describing the central bank as taking “another tightening step via reserve requirements.”
Analysts at London-based firm Capital Economics made similar observations.

“In the past month, new quantitative and credit tightening tools have been announced,” the firm wrote in a research note. “Last week the CBRT tightened restrictions on lira loan growth, a move that would likely have a similar impact to an interest rate hike.” 
Meanwhile, Turkey in January recorded its first monthly drop in reserves since May 2023, according to balance of payments data released this week.
Turkish annual consumer price inflation soared to 67.07% in February. The strong figures have fueled concerns that Turkey’s central bank, which had indicated last month that its painful eight-month-long rate-hiking cycle was over, may have to return to tightening.
“Pressures on Turkish policymakers are building ahead of the local elections on 31st March as capital inflows have slowed and FX reserves are falling again,” Capital Economics wrote. “We doubt the central bank will hike interest rates next week, but we’re growing more convinced that at least one further hike will be delivered in Q2.”
— CNBC’s Dan Murphy contributed to this report. More

From consumer and wholesale prices to longer-term public expectations, reports this week served up multiple reminders that inflation it isn’t going away anytime soon.
The stubbornly high prices appeared to take their toll on consumer behavior and expectations.
On a policy level, that could mean the Fed may hold rates higher for longer than the market expects.

Gas prices are displayed at a gas station on March 12, 2024 in Chicago, Illinois. 
Scott Olson | Getty Images

From consumer and wholesale prices to longer-term public expectations, reports this week served up multiple reminders this week that inflation isn’t going away anytime soon.
Data across the board showed pressures increasing at a faster-than-expected pace, causing concern that inflation could be more durable than policymakers had anticipated.

The bad news began Monday when a New York Federal Reserve survey showed the consumer expectations over the longer term had accelerated in February. It continued Tuesday with news that consumer prices rose 3.2% from a year ago, and then culminated Thursday with a release indicating that pipeline pressures at the wholesale level also are heating up.
Those reports will provide a lot for the Fed to think about when it convenes Tuesday for a two-day policy meeting where it will decide on the current level of interest rates and offer an updated look on where it sees things heading longer term.
“If the data keep rolling in like this, it becomes increasingly difficult to justify a pre-emptive rate cut,” wrote Steven Blitz, chief U.S. economist at TS Lombard. Taken together, the numbers show “the great disinflation has stalled and looks to be reversing.”

CNBC reports on inflation

The latest jolt on inflation came Thursday when the Labor Department reported that the producer price index, a forward-looking measure of pipeline inflation at the wholesale level, showed a 0.6% increase in February. That was double the Dow Jones estimate and pushed the 12-month level up 1.6%, the biggest move since September 2023.
Earlier in the week, the department’s Bureau of Labor Statistics said the consumer price index, a widely followed gauge of goods and services costs in the marketplace, increased 0.4% on the month and 3.2% from a year ago, the latter number slightly higher than forecast.

While surging energy prices contributed substantially to the increase in both inflation figures, there also was evidence of broader pressures from items such as airline fares, used vehicles and beef.
In fact, at a time when the focus has shifted to services inflation, goods prices leaped 1.2% in the PPI reading, the biggest increase since August 2023.
“There continue to be signs in PPI data that the disinflation in goods prices is largely coming to an end,” Citigroup economist Veronica Clark wrote after the report’s release.
Taken together, the stubbornly high prices appear to have taken their toll on both consumer expectations and behavior. While substantially lower than its mid-2022 peak, inflation has proved resilient despite the Fed’s 11 rate hikes totaling 5.25 percentage points and its moves to cut its bond holdings by nearly $1.4 trillion.
The New York Fed survey showed that three- and five-year inflation expectations respectively moved up to 2.7% and 2.9%. While such surveys often can be especially sensitive to gas prices, this one showed energy expectations relatively constant and reflected doubt from consumers that the Fed will achieve its 2% mandate anytime soon.
On a policy level, that could mean the Fed may hold rates higher for longer than the market expects. Traders in the fed funds futures market earlier this year had been pricing in as many as seven cuts totaling 1.75 percentage points; that since has eased to three cuts.
Along with the surprisingly strong inflation data, consumers are showing signs of letting up on their massive shopping spree over the past few years. Retail sales increased 0.6%, but that was below the estimate and came after a downwardly revised pullback of 1.1% in January, according to numbers adjusted seasonally but not for inflation.
Over the past year, sales increased 1.5%, or 1.7 percentage points below the headline inflation rate and 2.3 points below the core rate that excludes food and energy.
Investors will get a look at how policymakers feel when the rate-setting Federal Open Market Committee convenes next week. The FOMC will release both its rate decision — there’s virtually no chance of a change in either direction — as well as its revised outlook for longer-term rates, gross domestic product, inflation and unemployment.
Blitz, the TS Lombard economist, said the Fed is correct to take a patient approach, after officials said in recent weeks that they need more evidence from the data before moving to cut rates.
“The Fed has time to watch and wait,” he said, adding that “odds of the next move being a hike [are] greater than zero.” More

 A customer shops for food at a grocery store on March 12, 2024 in San Rafael, California. 
Justin Sullivan | Getty Images News | Getty Images

Wholesale prices accelerated at a faster than expected pace in February, another reminder that inflation remains a troublesome issue for the U.S. economy.
The producer price index, which measures pipeline costs for raw, intermediate and finished goods, jumped 0.6% on the month, the Labor Department’s Bureau of Labor Statistics reported Thursday. That was higher than the 0.3% forecast from Dow Jones and comes after a 0.3% increase in January.

Excluding food and energy, core PPI accelerated by 0.3%, compared to the estimate for a 0.2% increase. Another measure that also excludes trade services increased 0.4%, compared to the 0.6% gain in January.
On a year-over-year basis, the headline index increased 1.6%, the biggest move since September 2023.
A busy morning for economic data also showed that retail sales rebounded, up 0.6% on the month according to Commerce Department data that is adjusted seasonally but not for inflation. The increase helped reverse a downwardly revised 1.1% slump in January but was still below the estimate for a 0.8% increase.
Also, initial filings for unemployment insurance nudged lower to 209,000 last week, a decrease of 1,000 and below the estimate for 218,000, the Labor Department reported.
The market focused on the PPI release, which comes two days after the consumer price index, which measures what consumers pay in the marketplace, showed that inflation was slightly higher than anticipated on a year-over-year basis.

PPI is considered a leading indicator for inflation as it indicates costs early in the supply chain.
The BLS reported that about two-thirds of the rise in headline PPI came from a 1.2% surge in goods prices, the biggest increase since August 2023. As with CPI, the acceleration was traced to energy prices, with saw a 4.4% increase in the final demand measure. Gasoline prices jumped 6.8% at the wholesale level.
Services costs increased 0.3%, boosted by a 3.8% surge in traveler accommodation services.

Retail shows rebound

On the retail sales side, the data indicated that consumers kept ahead of CPI inflation, which increased 0.4% on the month, though sales were still sluggish.
Excluding auto, retail sales rose 0.3%, one-tenth of a percentage point below expectations. Motor vehicle parts and dealers saw an increase of 1.6%, second only to the 2.2% gain for building material and garden centers on the month.
Despite slumping prices, gasoline stations reported an increase of 0.9%. Electronics and appliance sales rose 1.5% while miscellaneous store sales increased 0.6% and restaurants and bars were up 0.4%.
Retail sales posted a 1.5% gain on a year-over-year basis, below the 3.2% increase in the CPI.
This is breaking news. Please check back here for updates. More

European Central Bank Chief Economist Philip Lane told CNBC that while March data showed progress on inflation, it was important to take time to decide when to ease monetary policy.
“We need to see workers’ real incomes improve, to rebuild, not just this year, the year after … But we also need to see, essentially, firms absorbing a fair amount of that in lower profits,” Lane also said.

The European Central Bank must take its time to get interest rate cuts right and will have a clearer picture of inflationary pressures in June, the institution’s chief economist told CNBC.
“A lot of evidence is accumulating, but what’s also fair to say is that the transition from this holding phase, we’ve been on hold since last September since a substantial hiking cycle, we do have to take our time to get that right, from holding to dialing back restrictions,” Philip Lane told CNBC’s Steve Sedgwick on Thursday.

Lane, a Governing Council member, said the euro zone central bank’s March meeting had been an “important milestone” in the accumulation of evidence, and showed the “disinflation process has been ongoing.” During the meeting, the ECB held rates and released updated macroeconomic projections, which lowered its inflation forecast for this year to 2.3% from 2.7%.
Inflation in the 20-nation bloc eased to 2.6% in February.
In line with the ECB’s March messaging, Lane said that more data was required, particularly around wages, and that the Governing Council would “learn a lot by April, a lot more by June” — the dates of its next two meetings.
In a press conference following the March meeting, ECB President Christine Lagarde said market pricing on the timing of rate cuts — which indicate a start in June as of Thursday — “seems to be converging better” with the central bank’s view.

June emerged as a key date in market commentary, as it’s set to mark the first meeting where the ECB can assess spring data on wage negotiations for the year.

Asked about other colleagues on the ECB’s Governing Council who have suggested rate cuts could take place before the summer, Lane said he believed this was a reference to the second quarter, which would include June.
“I think Q2 is a time when we will be far enough into 2024 to see more of the wage dynamic, to see more of the price pressures.”
He stressed that it was important, in his own role, to “avoid trying to provide calendar guidance to the market.”
“Once we are sufficiently confident that we will get back to target in a sustainable manner, in a timely manner, that’s the right time to move to the next phase,” he said.

Room for profits to come down

Policymakers have repeatedly stressed that many of the causes of the inflationary cycle have subsided, such as the energy price spike and supply chain issues. But they remain concerned about domestic inflationary pressures from corporate profits and wage rises.
Bank of England Governor Andrew Bailey caused controversy in 2022 for suggesting workers should not ask for a pay rise in order to avoid stoking inflation.
Lane said Thursday that, while the ECB’s forecast relied on some moderation in wage growth, it was “important” for people’s inflation-adjusted salaries to improve, and that companies should shoulder lower profits to allow this to happen.
“Wages were not the source of this inflation problem. But in terms of making sure we get back to target, the interplay between wages and profits, our forecast is built on a degree of wage deceleration,” he said.
“It’s important to say, we need to see workers’ real incomes improve, to rebuild, not just this year, [but] the year after. So we allow for higher to normal wage increases.”
Lane added, “But we also need to see, essentially, firms absorbing a fair amount of that in lower profits. Profits were quite high in 2022, there is some room for profits to come down. And that is part of the open questions we have.” More

The headline figure was in line with the forecast from economists polled by Reuters.
It follows a 0.1% contraction in December, while the U.K. economy entered a shallow recession in the second half of last year.

LONDON — U.K. gross domestic product grew 0.2% in January, the Office for National Statistics said Wednesday, as construction output jumped more than expected.
The headline figure was in line with the forecast from economists polled by Reuters.

It follows a 0.1% contraction in December, while the U.K. economy entered a shallow recession in the second half of last year.
Construction output rebounded from contraction to grow 1.1% in January, the ONS said, but fell 0.9% over a three-month period. The U.K.’s dominant services sector recorded a 0.2% rise in January, providing the biggest contribution to growth, as production output fell 0.2%.
Despite recording monthly growth, GDP was estimated to have shrunk 0.3% compared with a year ago in January, and fallen 0.1% over the three months to January 2024.

Jack Meaning, chief U.K. economist at Barclays, described the figures as “not a hugely positive picture, but it’s ahead of where we were at the end of last year.”
“Industrial and manufacturing have been weak for the last few prints, you’d expect some bounce-back from that in the end,” Meaning told CNBC’s “Squawk Box Europe” Wednesday.

“This is good to see, but we’ll have to see it on a more prolonged basis to know that it is something sustained.”
The latest figures are consistent with a forecast for a “gradual recovery in activity” in the coming months, said James Smith, developed markets economist at ING.
“We think the decline in overall fourth quarter GDP, which marked the second consecutive quarter of negative growth and therefore a technical recession, is unlikely to be repeated in the first quarter of 2024,” Smith said in a note.
The British pound was slightly lower against the U.S. dollar and the euro following the release. More