Turkey inflation above f'cast, rate cut still seen

* CPI tops f'cast, interest rate rise expectations intact

* Tax changes, food prices drive rise

* Shares extend losses slightly after data

By Selcuk Gokoluk

ANKARA, Nov 3 - Turkey's consumer prices rose more than expected in October, by 2.41 percent on the month, adding to share losses but not denting expectations of more cuts in interest rates to boost the ailing economy.

Consumer prices rose 5.08 percent year-on-year, marking a fresh 40-year low after reaching 5.24 percent in May, but still keeping inflation comfortably below the Central Bank's official year-end target of 7.5 percent.

"It is an upward surprise but I don't think this will change the central bank's thinking too much... We still think a cut of 25 basis points is likely in this month's interest-rate setting meeting," said Standard Chartered economist Manik Narain.

Economists had forecast a month-on-month rise of 1.80 percent in October as well as a 0.90 percent hike in producer prices, which rose 0.28 percent on the month for an annual rise of 0.19 percent.

The main share index <.XU100> ended down 2.36 percent, having traded down 2.15 percent ahead of the data. The lira <IYIX=> was firmer at 1.5050 in Wednesday-dated trade, having initially weakened slightly to 1.5080.

Inflation pressures have eased as the economy slipped into a deep recession this year, opening the way for a series of interest rate cuts, which have slashed the benchmark rate by 10 percentage points since November last year.

END OF TAX CUTS DRIVES RISE

Consumer price inflation had been expected to be higher in October due to the expiry of a slew of temporary tax cuts on white goods and automobiles, but the rise in food prices also drove the increase.

"The ending of tax cuts, the hike in electricity prices and seasonal increases in clothing and unprocessed foods have driven the increase," said Fortis Bank economist Haluk Burumcekci.

"I do not think it will affect policy. Cuts of 25 basis points will continue for at least two months."

Clothing and shoes consumer prices showed the biggest increase, jumping 8.39 percent from a month earlier.

Food and non-alcoholic beverage consumer prices rose 2.96 percent, while household goods prices were up 2.51 percent.

Year-on-year the biggest increase was shown by alcoholic drinks and tobacco prices, which leapt 20.95 percent.

However, the underlying trend of low inflation is expected to continue in the months ahead.

In the latest twice-monthly central bank poll of analysts' expectations, consumer price inflation was expected to be at 5.40 percent at the end of 2009, leaving the central bank scope to cut interest rates further.

The central bank cut its key borrowing rate to a record low of 6.75 percent in October as it continued to try and stimulate the economy.

In its three-year economic plan, unveiled last month, the government sharply raised its estimate for the contraction in 2009 GDP to 6 percent from a previous 3.6 percent.

The central bank's next rate-setting meeting is on Nov. 19.