Yippee, inflation is falling!

Except that it is not! It is true that according to official figures released by the Turkish Statistical Institute on July 3, prices fell 0.5 percent monthly in June, lower than expectations of a 0.2 percent fall. As a result, annual inflation fell almost one percentage point, from 8.1 to 7.2 percent.

However, the plunge was almost entirely due to food prices, which contributed -0.7 percentage points to monthly inflation. According to my calculations, unprocessed food prices fell around 6.5 percent in June, driving annual unprocessed food inflation to single-digit territory from more than 16 percent. Headline food inflation fell from 12.8 to 9.3 percent, its lowest since September 2013.

However, both non-food and core inflation, which excludes the volatile energy, food, beverages, tobacco and gold prices, slightly edged up. The three-month moving average of seasonally-adjusted monthly core inflation, an indicator of trend inflation often used by Turkey economists, stayed put at 0.8 percent - over 9 percent annualized.

Similarly, a cursory look at the prices of some services items such as rent, transportation, restaurants, cafés and hotels reveals that services inflation stayed roughly the same. Last but not the least, despite lower oil prices, annual producer inflation actually rose from 6.5 to 6.7 percent. At least part of this rise may be passed on to consumers in the next couple of months.

The Central Bank will likely play down all this and emphasize the drop in food inflation when it releases its monthly note on price developments early in the week. In fact, headline inflation may fall in July and August as well on the back of a further correction in food prices. Moreover, thanks to a high base effect from...