Impacts of Inflation and Deflation in Economy Assessment 2022

IMPACTS OF INFLATION AND DEFLATION IN ECONOMY 1
IMPACTS OF INFLATION AND DEFLATION IN ECONOMY
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IMPACTS OF INFLATION AND DEFLATION IN ECONOMY 2
Turkey’s central bank: Food,
energy prices determinants in
March inflation drop
BY DAILY SABAH
I S T A N B U L E C O N O M Y
A P R 0 6 , 2 0 2 0 2 : 4 1 P M G M T + 3
(AA Photo)
Food and energy prices have been a determining factor in the drop of the March
consumer prices index, the Central Bank of the Republic of Turkey (CBRT) said.
The bank’s assessments came in its March price developments evaluation
Monday after the country’s inflation rate fell to 11.86% in the month as a drop in
global oil prices provided some relief after increasing for four consecutive
months. Month-on-month, consumer prices rose 0.57% in March.

IMPACTS OF INFLATION AND DEFLATION IN ECONOMY 3
In February, year-on-year consumer price inflation was at 12.37%, and it has
remained lofty after a decline through much of last year.
Energy costs have decreased significantly with the rapid decline in oil prices, the
bank said, adding that the prices of fresh fruits and vegetables were also effective
in the slowdown of annual food inflation. Prices in non-fresh fruits and vegetable
items accelerated, it noted.
Turkey is nearly completely dependent on imports to meet its energy needs and a
global drop in prices last month led to a 1.91% decline in transportation-related
prices.
Basic goods groups' contribution to annual consumer inflation, compared to
February, increased by 0.28 points, while the energy, food and service groups’
contribution decreased by 0.67, 0.10 and 0.03 points, respectively, the report said.
Basic goods groups' annual inflation jumped by 1.13 points to 8.18%. Annual
energy inflation dropped by 5.73 points to 9.81%.
Food inflation slowed to 10.1% from 10.6% the previous month. The figure is just
below the central’s bank’s year-end forecast of 11%. Prices of some vegetables
are said to have dropped after goods that couldn’t be exported due to the
coronavirus measures were sold in the domestic market.
Monday’s assessment indicated that service inflation declined to a limited extent
last month, while inflation in basic goods groups increased with the developments
in the exchange rates. It was also stated that in the core indicators annual inflation
accelerated slightly.

IMPACTS OF INFLATION AND DEFLATION IN ECONOMY 4
Inflation was a pressing issue for the economy after it surged to a 15-year high of
above 25% in October 2018 but briefly touched single digits last fall thanks
largely to a base effect and tight monetary policy. It has since edged up, remaining
at around 12% in the past months.
Analysts have said the possibility of reaching single-digit inflation in the second
half of the year continues when taking into consideration the central bank's
guidance and that the decline in oil prices could contribute to this.
The CBRT, which has slashed interest rates by 1,425 basis points since July 2019,
aims for inflation to drop to single digits this year. It predicted that inflation would
fall to 8.2% by the end of the year.
The price of Brent oil has fallen to below $25 (TL 169) per barrel from $72 at the
beginning of January, leading Turkey to cut petrol prices by TL 1.5 ($0.22) in
March, and diesel oil prices by around TL 1.
The government's year-end inflation target is 8.5% for 2020 as laid out in the
government's New Economic Program (NEP) announced last September.
Over the last decade, annual inflation saw its lowest level at 3.99% in March
2011, while it peaked at 25.24% in October 2018.
Questions
1 Define inflation. (2)
Inflations can be defined as the situation in which the price of the economy rises.
In this case, prices of goods and services rise up leading to an increase in the cost
of living. Inflations also results to a decline in the value of money as the prices of
goods increases (Korkmaz, 2015).