Inflation is one of the most used economic concepts today. Especially in Turkey, inflation is mentioned every day in the written and visual media, in the conversations among citizens, and in business life. High inflation, which has never left the agenda in Turkey, has now become the main agenda item for developed countries due to the economic conjuncture experienced after the pandemic. Let’s briefly answer the question ‘what is inflation’, even though there is no need to define it anymore.
Inflation why?
In the simplest terms, inflation is the tendency for prices in a country’s economy to increase. Inflation is measured by national and international data centers using economic, mathematical and statistical methods, based on the prices of a basket of various products and services. In Turkey, this task is carried out by the Turkish Statistical Institute. If we go into more detail about inflation; By general definition, inflation is calculated based on consumer and producer prices. While consumer inflation expresses the price increases in consumer goods and services of individuals in that country; Producer inflation is used to describe the increase in the prices of inputs used in production processes. Under normal circumstances, there is a linear relationship between producer inflation and consumer inflation. That is, if producer prices increase; Since producers’ costs will increase, consumer prices are also expected to increase. From time to time, producer prices and consumer prices may move in opposite directions for various reasons.
What is recession?
Another concept in the economic literature that is highly likely to occur in recent years due to the pandemic is recession.
Recession can literally be defined as the failure of a country or region’s economy to grow. Economic or political crises are situations in which an economy shrinks for a period of time due to natural disasters or country-specific crises. For a recession to occur, the shrinkage performance of a country’s economy must be continuous. As accepted today, in order to say that a country is in recession, its economy must shrink for two consecutive quarters. Although this situation occurred for many countries during the pandemic, it was not permanent. For example, the US economy grew by 5 percent in the first quarter of 2020 due to the impact of economic life coming to a halt due to the pandemic; It contracted by 31.4 percent in the second quarter and technically entered recession. In the following third quarter, the US economy emerged from recession by growing by 33.4 percent.
The consequences of the efforts spent to reduce the effects of the pandemic still keep the possibility of countries entering a recession in the coming years alive. Especially in developed countries, rising inflation and increasing public expenditures stand as factors that support the threat of recession.
What is stagflation?
The situations in which inflation and recession occur simultaneously in an economy, as we defined in the introduction of our article, are called stagflation. The word is a combination of the English words inflation and stagnation.
Stagflation means rising prices in a shrinking economy. The stagflation process, in which employment generally declines, can be described as a spiral that is very difficult to get out of economically. One of the main reasons for the spiral is that prices are increasing due to supply not being able to meet demand, while the employment required to increase supply is not being created. It is a period in which economies suffer severe damage, as it is a period in which expenditures, purchasing power and social welfare decrease as prices rise.
