Erdem Başçi: Latest economic outlook and macroeconomic developments in Turkey Panel speech by Mr Erdem Başçi, Governor of the Central Bank of the Republic of Turkey, at the Conference on “Policy responses to commodity price movements”, Istanbul, 7 April 2012. *  *  *  Distinguished Guests, The global economic developments observed during the last decade are influential on the commodity prices. Some of these developments were real factors directly affecting the supply and demand of these commodities. On the demand side, significant growth in demand for energy, food and raw materials of developing countries, led by China and India, became an important factor in commodity markets in recent years. Likewise, the discrepancy between the paces of recovery of developed and developing countries in the aftermath of the global crisis and the global monetary expansion are observed to have reflections on the demand for commodities. The increasing income in developing countries enjoying robust growth broadly decreases the price sensitivity of commodity demand. As a result of production capacity shortfalls of exporting countries in the short run and these countries’ reluctance to increase their production capacity, prices sometimes display excessive increases in the event of a setback in supply. On the other hand, the robust economic growth potential of developing countries implies that the demand for raw materials will continue to be strong also in the medium term. The key solution for imports-dependent countries due to having little natural resources lies in increasing the productivity in agriculture and energy sectors.
Commodity price changes with relatively more of a permanent nature may distort the general pricing behavior and initiate a wage-price cycle. This may entail prolonged upward movement in inflation in general and, accordingly, the high costs associated with this. Therefore, to be able to contain the potential second-round effects due rises in commodity prices, it is important for central bankers to pay close attention to core inflation indicators and inflation expectations, and shape their communication policy in this direction. BIS central bankers’ speeches  1  We, as the Central Bank of the Republic of Turkey (CBRT), are also in the position to carry out the abovementioned analyses. As a matter of fact, in our Inflation reports as well as the Summary of the Monetary Policy Committee (MPC) meetings, we share with the public, our assessment of the nature of commodity price changes. In the Inflation Report published in January 2012, we made the following assessment on oil prices: “Another risk factor in the forthcoming period is the uncertainty regarding oil prices. Although the weak course of the global economy dampens commodity prices, recent manifesting problems regarding oil supply pose upside risk to energy prices.