Inflation, a subject with which we are very familiar in our country, concerns, as we know, the increase in the general price level. On the contrary, situations where prices tend to fall are negative inflation, also called 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%. Not to mention the feeling… Negative inflation may seem like a dream to us, but it has been around in Japan for years. negative inflation was on the rise.

In recent years, Japan has won the battle against deflation and has now maintained inflation 2.2% remains at the same level. “How nice, prices always fell, why did they have trouble with this?” If you say so, we have investigated for you what scenario could occur in the event of negative inflation in our country.

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

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

Although consumers in a deflationary country may initially welcome the price drop, in reality this is not a favorable situation. Because deflation exists the expectation that prices will fall creates. For this reason, products and services cannot easily find buyers. In other words, the expectation that prices will fall causes demand to decrease.

Why does deflation occur in an economy?

There could be several reasons for this situation. One of these is that of the country in question It is the reduction of credit and money supply by the central bank. This causes prices for all products and services on the market to drop.

Another demand decreases. 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 drop in the price level of existing products and services.

Finally the economy is growing faster than the amount of money circulating in the market also causes price drops. For example, improvements in operational processes due to sudden technological developments in a country will increase efficiency and be reflected in a drop 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. If a possible wind of deflation blows in our country Let’s take a look at the changes that can occur.

First of all, because we expect prices to fall “Why should I buy it now, it’s cheaper anyway.” proverb 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 are the borrowing costs?” If you say so, let’s explain it this way: Although nominal interest rates are low during the deflation period, the repayment costs of instruments such as loans and credit cards will be higher because real interest rates are low. For this reason, debt products are used decrease visible.

In a country with negative inflation, investments seem to decline.

In a market where spending is decreasing 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 with 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 unemployment. Because in an economy where people don’t spend money, companies can’t make the money they hope for, and therefore can’t try to create jobs.

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

If all these factors are connected like a chain, a deflationary spiral can occur.

A deflationary spiral occurs when companies gradually lower their prices to encourage consumers to spend money. a much greater decline in various economic activities represents the situation.

Furthermore, in an economy with negative inflation, wages remain constant or rise while prices fall. It can increase the real value of wages. However, as this situation is offset by rising unemployment, there is a change in the general state of the economy. does not lead to improvement.

Such as central banks lowering interest rates to stimulate the economy attempted to ease monetary policy visible.

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

As a result, the regular drop in prices due to negative inflation is primarily a problem for those of us who are used to high inflation. Although it sounds like a dream, in reality it is not…

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