Mar 26, 2014 - 0 Comments - Data -

Inflation from a Historical Perspective

If there is a continuous increase in the overall price levels in a country, the economists call this inflation (deflation, if the opposite occurs). However, speaking about overall price level, it is practically impossible to track how much each and every product costs. Therefore, when the inflation dataset is generated, a basket of certain goods and services are selected and the changes the “overall” price levels are calculated by using this basket of commodities.

The increase and decrease of the overall price level are calculated making use of different baskets of goods and services: CPI (Consumer Price Index), PPI (Producer Price Index) and WPI (Wholesale Price Index). While CPI shows how the consumers are affected from inflation, one should check the PPI in order to understand how the producers are affected from the overall price level (Table 1). In contrast, the GDP Deflator measures the level of prices for all new and domestically produced final goods and services in an economy. It is calculated by dividing the nominal GDP with real GDP and is based on a specific year. As such, GDP deflator is not based on a fixed basket but rather captures the price movements in all the goods and services. 

Table 1

In Table 1, you will see the trends of overall price level changes from 1939 to 2011. Turkey, starting from the end of 1970s until the early 2000s, fought with the “inflation monster” as it is named in the mainstream media. While the inflation was around 8.5% during the first three decades following the Second World War (from 1945 to 1977), it rose to an average of 61.6%  between 1978 and 2002.

When we zoom-in on the final quarter of the same data (between 1983 and 2011) in Table 2, the significant decrease in the inflation level after 2002 will be apparent. Including the impact of the structural and institutional transformations starting in 2000s, which are known as “Kemal Derviş Reforms” in the public, the inflation rate fell to an average of 10.2% in this period (2003-2011).

Table 2

Source:

Inflation dataset is received from “Statistical Indicators 1923-2011”, published by Turkish Statistical Institute.

Image: Nalan Yırtmaç

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