Turkey’s consumer price inflation rose higher than expected in July, led by a surge in food prices that gained pace with a weaker lira following a failed coup attempt.

The annual inflation rate was 8.79 per cent last month, compared with 7.64 per cent in June, Turkey’s statistics institute said on Wednesday. The rate outpaced even the highest prediction of 8.5 per cent in a Bloomberg survey, and was significantly above the median estimate of 8.16 per cent. Food prices rose an annual 9.69 per cent, compared with 6.63 per cent a month earlier.

After the botched takeover on July 15, central bank Governor Murat Cetinkaya warned of a temporary “marked” increase in annual inflation that would reverse later in the year. The lira has weakened more than 4 per cent against the dollar since the putsch, raising the cost of imported goods. The bank slowed the pace of borrowing-cost reductions, lowering the overnight lending rate by 25 basis points to 8.75 per cent on July 19 — short of the 50 basis-point cuts it delivered during the previous three meetings.

“Cetinkaya’s honeymoon period just ended,” Timothy Ash, a strategist at Nomura International Plc in London, said in an emailed note. The inflation data reduces the scope for a further cut, and may also affect a critical credit review by Moody’s Investors Service, he said.

Rating review

Moody’s said last month that it was reviewing Turkey’s Baa3 rating — the lowest level of investment grade — to “assess the medium-term impact” of the failed coup on the country’s growth and policy-making institutions.

If the central bank cuts rates and the lira weakens, that could lead to a “vicious cycle building on the foreign exchange front, which could play into Moody’s concerns on the external financing front” ahead of the Moody’s review, Ash said.

The lira weakened after the inflation data and was trading 0.6 per cent lower at 3.0087 per dollar at 10.55am in Istanbul.

The bank will hold the overnight lending rate at 8.75 per cent this year, Capital Economics said in an emailed report, removing an earlier prediction for a further cut of 25 basis points.

“The central bank justified an interest-rate cut last month by referring to the improving trend in core inflation,” the report said. “The same argument can’t be made now.”

Core inflation, which excludes volatile items including food and gold, accelerated to 8.70 per cent, from 8.67 per cent in June.

Last month, Cetinkaya maintained the bank’s full-year inflation forecast of 7.5 per cent in 2016, dropping to 6 per cent next year. It has missed its target for five years in a row, with the goal set at 5 per cent since 2012.