The new and fast growing trend among publishers to print the prices on the back cover again is evidence of the fact that Turkey is rapidly losing its inflationist memory.

I love browsing through books at bookstores whenever I have time. My main interest is the books, actually. But since the beginning of this year I have been noticing a change. They no longer attach price tags to the books as we got used to in the long inflationist period. Since the beginning of 2011, publishers print the price of the book directly on the back cover. Are you aware of what an important change this is? This, indeed, can be read as an indicator of the fact that many parameters including the maturity of bank deposits are about the change.  Let me tell you why.

When I was a child, that is, in the late 1960s and early 1970s, the prices of the books were printed directly on the back cover. Along with the inflationary period in the late 1970s, self-adhesive tags started to be attached to the back covers. The price of the books changed as they were waiting on the shelves. The situation was not as bad as that in 1930s Germany. We did not have to carry ­ a suitcase of Turkish liras. However, sales clerks in bookstores were changing the price tags calmly while you were thumbing through books. Then, publishers ceased printing the prices on the back cover of the books since the prices kept changing every day. Price tags therefore became an annex. This is the story of the self-adhesive price tags on the back cover of books. As you see, our generation knows a detail that the new generations will never know about.

Turkey's adventure with high inflation ended roughly in 2004. Inflation stood at single-digit levels for the first time in three decades. Back then also I was working on the Monetary Policy Board of the Central Bank of Turkey. When I had been assigned to the office in 2001, the inflation rate had stood at around 70 percent. By 2004, it decreased to 8 percent. The program was successful. Or the world had met China carrying out cheap production. Whatever the reason is, the critical point is that inflation ceased to be a problem for Turkey at the beginning of the twenty-first century. Nevertheless, Turkey just recently has started to lose the inflationist memory. The new and fast growing trend among publishers to print the prices on the back cover again is evidence of the fact that Turkey is rapidly losing its inflationist memory. This is of significance. We should note this down.

So how can we read this development? First, Turkey has faced the global financial crisis before having enough time to adjust itself to the period after the high inflation. One abnormality had ended and another abnormality began before people had time to get used to the normal. It seems that this is to some extent why it took a long time for Turkey to lose its inflationist memory.

Second, the fact that the maturity of bank deposits tend not to extend must also be read from this perspective. The average maturity of deposits in Turkey is still one or two months. The maturities have not been extended yet. The reasons for this are related to the depositors as much as to the bank managers. This also is related to the inflationist memory Turkey has inherited from the years of high inflation. In those periods, it was not safe for depositors to sign long-term contracts or keep long-term savings since the level of inflation in the future could not be foreseen. So, you had to renegotiate the interest rates just as the price of a book on the shelf continuously changed.  You needed to readjust the inflation rate to the changes in the expectations about inflation. This is the second point I want to underline.

Third, depositors, however, are not alone responsible for this situation. The customer revises his or her vision in line with the guidance of the bank. The maturity structure of deposits is shaped by the bank management as well as the depositor. The maturity of deposits remaining short on the one hand and banks' initiative to extend long-term real estate credits on the other hand is evidently bad for financial stability. Following the Central Bank's decision in January to increase the required reserve ratios, the volume of demand deposits decreased by 5 percent while that of long-term deposits increased by 11 percent. This is a good development. Let us wait and see whether the Central Bank's intervention into the monetary markets work properly.

This commentary was published in Radikal daily on 18.03.2011