Speech Central Bank of the Republic of Turkey  Prof. Şahap Kavcıoğlu, Central Bank Governor German-Turkish Chamber of Commerce and Industry 8 September 2021, Ankara  2  Dear Guests, First, I would like to thank the German-Turkish Chamber of Commerce and Industry for their kind invitation. In my speech, I will share our views on the recent economic developments in Turkey. The European Union is Turkey's top trading and investment partner. EU countries account for 55% of our exports and 50% of our imports. Most of our exports are destined for Germany. Despite the pandemic-driven drop in numbers, the majority of foreign visitors Turkey receives are from the EU. European countries account for about 60% of foreign direct investments. Therefore, I would like to express that I find your participation and the mutual exchange of ideas that will come out of this meeting very important. The sped-up vaccine rollout worldwide bolsters global economic recovery. Looking at the world economy, the services sector appears to have been more hampered by COVID-19 restrictions than the manufacturing industry. Recent PMI data indicate that the services sector is matching the ongoing recovery in the manufacturing sector. This supports a more balanced global economic outlook in terms of demand composition. Strong increases in services PMI hint at a worldwide economic rebound, particularly for the pandemic-damaged euro zone. Growth prospects for our main trading partners suggest that the growth outlook might be more upbeat in August than in April.

The increase in consumer prices, however, remained more limited compared to producer prices inflation. Thus, the gap between producer and consumer inflation has recently risen well above the long-term average in many advanced and emerging economies. For instance, the PPI in the euro area has risen to almost five times the area’s CPI. As Fed Chair Powell mentioned in his Jackson Hole Symposium welcoming remarks, during the pandemic, we saw that a narrow group’s contribution to inflation dominated price developments. For example, prices of consumer durables, which had been declining on average over the 25 years preceding the pandemic, became one of the groups that contributed the most to the recent rise in inflation with the effect of supply constraints. During the process of re-opening and economic normalization, energy and services prices significantly increased globally. Global central banks consider that high price increases in some sectors stemming from energy and the pandemic will be temporary as demand composition normalizes, supply constraints ease and base effects are eliminated. In the upcoming period, these factors will have a disinflationary effect in our country as well. In global central banking practice, while determining the monetary policy stance, central banks take into account core inflation indicators adjusted for short-term incidental factors that are outside the control of monetary policy. For the reasons I have just mentioned, extraordinary conditions brought about by the pandemic  8  increase the importance of core inflation indicators, which are used to measure the underlying trend of inflation adjusted for short-term volatility.