The dollar has increased by 4 liras between the dates of December 13-20. This increased the expectations of a higher inflation rate for the future. In the following days, fluctuations in the dollar-TL exchange rate thickened the fog layer on the long-term inflation rate. People began to track the changes in the Dollar-TL currency or cryptocurrencies almost every five minutes from their phones in order to see how their savings in TL were being affected. A question comes to mind then: are these people trying to project inflation or - let’s say they are doctors - are they trying to take care of their patients?
It is quite common that people are acting like amateur economists and are trying to forecast inflation and how to invest their incomes these days. Such behaviors decrease the individual's productivity in their workplaces and also imposes a cost on society. In economics, we call this loss of productivity “the cost of inflation uncertainty”. Of course, the cost of inflation does not only stem from the loss of productivity and the cost varies among different segments of society. For instance, when you loan money in the currency of the Turkish Lira, it would cause a loss on your side since when you receive your money back in TL, you are able to buy fewer goods and services. The opposite is true for borrowers in Turkish Lira.
The costs of inflation vary for different income groups. The sharp rise in food prices we have felt in recent days affects low income groups more than high income groups, especially those whose budgets take up a lot of space for food consumption. Low income families spend greater portions of their incomes on food. Thus, they are left with very little, if anything, to spend on education, cultural activities, or art. The opportunity for social mobility, which is especially closely tied to education, becomes narrower and a self-fulfilling process that widens inequality. As it is shown in this article, inflation has both short-term and long-term costs.
Assoc.Prof.Bülent EŞİYOK
Head of Department of Economics and Finance
