Therefore, the banking sector failed to fulfill its core function as a provider of resources for the economy. At the same time, risk management principles were not put into practice in the banking system and the consequences were apparent in the 2000-2001 crises. Another unfavorable impact of high and chronic inflation on the economy in our country is that economic units became used to operating in a highly inflationary environment. To put it more clearly, backward indexing behavior became common in pricing activities. Thus, wall of inertia evolved in inflation, which was difficult to break. Here “inflation inertia” simply refers to the situation of, yesterday’s inflation designating today’s inflation and today’s inflation designating future inflation. Hence, as inflation increased, inflation expectations increased with it and a self-nurturing inflation cycle began. In a period of high and chronic inflation, consumers were not inclined to control price and quality less and were also less concerned about diversity in selecting products. At the same time, producers were less concerned with cost and efficiency while pricing and were willing to determine profit margins freely, and invest less on increasing product diversity. As a result of this behavior created by the inflation process, goods and services could be sold at any price since consumers did not control prices, while producers did not control cost. Thus, this attitude provoked a resistance against anti-inflationary policies that were introduced at intervals and significantly slowed down the decline of inflation.
At this point, instead of going into detail about the inflation outlook, I suggest that you refer to the press release “March Inflation and Outlook”, which is available on our website. Figure 2: Inflation Developments * 100.0 90.0  CPI  WPI  80.0 70.0  (%)  60.0 50.0 40.0 30.0 20.0 10.0  Mar-05  Jan-05  Nov-04  Jul-04  Sep-04  May-04  Mar-04  Jan-04  Nov-03  Jul-03  Sep-03  Mar-03  May-03  Jan-03  Nov-02  Jul-02  Sep-02  May-02  Mar-02  Jan-02  Nov-01  Jul-01  Sep-01  Mar-01  May-01  Jan-01  0.0  *For the January-March 2005 figures, 2003 base year index was used. Source: SIS. I would like to briefly consider the underlying reasons for the success of the fight against inflation. Along with the issues mentioned above, the implementation of firm and sound policies and important institutional reforms are crucial to the decline of years of inflation and finally getting rid of the label; “a country with chronic high inflation”. The first, and perhaps the most significant institutional development, is that the institutional structure of our Bank has become conducive to maintaining price stability. As you know, in 2001, in amendments to its law, the main purpose of the Central Bank of the Republic of Turkey was designated as maintaining price stability and the Bank was given the mandate to directly determine necessary monetary policy and monetary policy instruments.