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What is Inflation?

What is Inflation?

Inflation is an increase in the prices of goods and services. However, prices of goods and services may increase or decrease over time. Inflation is not just an increase in the price of a particular good or service, but a steady increase in the overall level of prices.

In other words, it is not inflation that only the prices of some commodities increase continuously or the prices of all commodities increase one time.

For example, the monthly inflation rate is 1 percent, which means that the general level of prices in that month increased by 1 percent compared to the previous month. The fact that the annual inflation rate is 30 percent means that the prices have increased by 30 percent on average compared to the previous year, for example, a commodity basket purchased for 200 TL last year could only be taken up to 260 TL this year.

Decrease in inflation; The decrease in prices, the increase in people’s purchasing power, and the increase in income. Declining inflation means less price increases, less purchasing power of people, and stability and prosperity.

Inflation rates are also very influential on exchange rates, as they can directly affect the steps taken by central banks in monetary policy. Because the inflation rate is the leading indicators for the changes in interest rates of central banks.
For example, in the event that the inflation rates deviate upward from the targets of the central banks, the interest rate increase expectation is in the foreground, whereas if the inflation rate is below the targets of the central banks, the interest rate decrease expectancy is foreground.