What Would Happen If Inflation Were Negative in Turkey?

Inflation, which is a subject we are very familiar with in our country, refers to the increase in the general level of prices, as we know. However, on the contrary, situations where prices tend to decrease are negative inflation, also known as negative inflation. deflation It is known as.

The announced annual inflation rate in our country is currently 67.07%. According to the Inflation Research Group (ENAG) 121.98%. We are not even talking about the feeling… Negative inflation may seem like a dream to us, but it has been in Japan for many years. negative inflation was emerging.

In recent years, Japan has won its battle against deflation and has now kept inflation at 2.2% remains at levels. “How nice, prices were always falling, why did they struggle with this?” If you say so, we have examined for you the scenario that may occur in case of negative inflation in our country.

What exactly is negative inflation (deflation)? Is it a good thing?

Deflation in a country price levels continue to fall expresses. In other words, in a market dominated by deflation, the price of products and services regularly becomes cheaper.

In a country experiencing deflation, although consumers may initially like the decrease in prices, it is not actually an advantageous situation. Because deflation is the expectation that prices will fall creates. For this reason, products and services cannot find buyers easily. In other words, the expectation that prices will decrease causes demand to decrease.

Why does deflation occur in an economy?

There may be various reasons for this situation. One of these is the relevant country’s It is the reduction of credit and money supply by the central bank. This causes prices to decrease for all products and services in the market.

Another one decreases in demand. This situation is due to the consumer’s tendency to save, etc. It is caused by situations. Low demand means low spending, which in turn causes a decrease in the price levels of existing products and services.

Finally the economy grows faster than the money supply circulating in the market also causes price decreases. For example, improvements in operational processes as a result of sudden technological developments in a country will increase efficiency and will be reflected in a decrease in prices.

Now let’s get to our main topic. What would happen if deflation occurred in Turkey?

Yes, we understand what deflation is and why it happens. In case of a possible deflation wind blowing in our country Let’s review the changes that may occur.

First of all, because we would expect prices to fall “Why should I buy it now, it will be cheaper anyway.” saying postpone our expenses it could be the subject.

And the fact that inflation is negative increasing the cost of borrowing There is a situation. “What is the borrowing cost?” If you say so, let’s explain it this way: Even though the nominal interest rate is low during the deflation period, the repayment cost of instruments such as loans and credit cards will be higher because the real interest rate is low. For this reason, the use of debt products decrease visible.

In a country with negative inflation, investments are seen to decrease.

In a market where spending decreases with the expectation that prices will fall further demand is low. For this reason, investors may find it risky to enter a market where demand is low.

In an economy that receives little investment economic growth slows down is seen.

The decrease in demand, the decrease in investments received and the slowdown in economic growth causes an increase in the unemployment rate. Because in an economy where people do not spend money, businesses cannot earn the money they hope for, and therefore cannot try to create employment.

Moreover Changes in individual investment preferences is seen. For example, individual investors who want to invest their money may turn to less risky assets.

If all these factors are linked together like a chain, a deflation spiral may occur.

A deflation spiral occurs when businesses gradually lower their prices to encourage consumers to spend, and as a result of this movement, a much larger decline in various economic activities represents the situation.

In addition, in an economy with negative inflation, wages remain constant or increase while prices decrease. It can increase the real value of wages. However, since this situation is balanced by increasing unemployment, there is a change in the general state of the economy. does not create improvement.

Like central banks reducing interest rates to stimulate the economy tried to loosen monetary policies visible.

Additionally, negative inflation in that country deterioration of foreign trade balance it causes.

As a result, the regular decline in prices due to negative inflation is, in the first place, an issue for those of us who are accustomed to high inflation. Even though it sounds like a dream, it’s not actually like that…

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