ANKARA, Feb 6 (A.A) - Central Bank announced on Wednesday a report on ''basic characteristics of inflation process, inflation rate in January and expectations''.
In the brief review part of the report about inflationist process in Turkey, it was mentioned that there had been a very high inflation in Turkey for 25 years when compared to international criteria.
''So the first characteristic is that there has been a high chronic inflation in Turkey for a long time. Second characteristic is the existence of periods during which the inflation remained at a specific rate without any sharp fluctuations,'' it said.
''The period between beginning of 1989 and end of 1993, the period between mid-1995 and mid-1997 and the period between beginning of 1999 and fifth month of 2000 can be shown as examples to these periods. This factor means that an inertia which continued for a long time can be formed in inflation. The third characteristic is that the inertia in question can be removed immediately and inflation rate can sharply increase or decrease,'' it said.
Noting that ''high public deficits and financing of these deficits from the Central Bank sources'' were the basic inflationist causes in first periods of process of the high inflation which continued for 25 years, it said that especially second half of 1970s and early 1980s attracted attention regarding this matter.
Recalling that inflationist process had continued although the public deficits had not been financed from Central Bank sources in the course of time, the report said, ''economic units who lived under high inflation for a long time and saw that anti-inflationist programs had failed are developing mechanisms which protect themselves from the inflation.''
''These mechanisms generally emerge as indexation of income increases which are expected to happen in coming period with the previous inflation rate. In this way, inflation rate in previous period is brought to the future,'' it said.
Noting that compulsory financing of increasing public deficits with more domestic borrowing was in question, it said, ''in this case, financial markets should grow by at least the inflation rate in order to keep increase in real interest rates at specific limit. In other words, inflation rate in previous period is one of the factors determining the monetary enlargement during the periods in which a stability program is not implemented.''
Stressing that the inflation rate did not fluctuate sharply in such periods due to increases in cost stemming from the previous inflation, gaining an inertia, it said, ''besides, increase in foreign exchange currency has become one of the important factors determining the inflation.''
It said that negative economic expectations changed into positive, there had been an important decrease in interest rate and the ''bubble created in 2001 summer'' in foreign currency had exploded.
Noting that this development in foreign currencies and interest rates contributed to slowing down the monthly price increases, it said that the level of consumer inflation and private manufacturing industry price increases in January were below the averages in same months of previous periods.
Stressing that decreasing trend especially in private manufacturing industry inflation was notable, it said that the current level of private manufacturing industry inflation and expectations about its level in coming months were in harmony with the end-2002 program targets.
Noting that consumer inflation which had been announced as 5.3 percent in January remained high when compared with both markets' expectations and year-end target of the program, it said, ''as of sub-groups, rate of price increases have very different trends. Price increase rates in foodstuffs and private motor vehicles sub-groups were highly above the averages in previous periods.''
''However, when also the seasonal reasons are taken into consideration, decreasing trend in price increases rate in clothing, real-estate, health, entertainment and restaurant services sub-groups is satisfactory,'' it said.
The report said it was observed that both public and privates sectors' habit of setting prices in the future by taking the previous inflation into consideration continued.
Noting that the inclination of the foreign currency was expected to be in harmony with the long term balance within framework of the ongoing economic program, it said that the main inclination which had seen in recent months in basic factors that determined the inflation and was expected to continue in near future, decreased the inflation in a radical way.
''Consequently, the expected inflation rate is still above the program target although there has been an importnat recovery in recent months,'' the report said.
Noting that there were two factors which would make short term inflationist expectations more positive in coming period, it said, ''the first factor is the inflation rates in early months of 2002. The nominal appreciation in the Turkish lira since October will play an important role in keeping inflation at low levels over the coming period.''
''Prelimenary effects of this factor have started to be observed in private manufacturing industry prices. When the temporary effects which were created by bad weather conditions and increase of value added tax and supplementary motor vehicles purchase tax rates to their former levels, are removed and when domestic demand conditions are taken into consideration, also the developments in the consumer inflation are expected to be positive,'' it said.
''The second factor which will help expectations be more positive is the Law on Restructuring of Debts to Finance Sector and Amendment to Some Laws which entered into effect and the Law on Public Organizations' and Institutions' Products and Services Tariffs and Amendment to Some Laws which facilitates taking of measures to achieve primary budget planned in 2002,'' it added.