similarly, consumers have also begun to actively participate in the pricing process, using the advantage of a more competitive environment. at this point, i wish to emphasize two issues i deem significant. the first one of these has to do with inflation falling at a slower pace compared to other sectors, also due to pricing behavior directed to increasing the profit margins, at those sectors where demand is relatively rigid and competitive structure relatively weak. this situation, also expressed as rigidity in inflation, by way of causing differentiation in relative prices, forms an obstacle to prices to carry on their task of conveying information properly. the rigidity in inflation recently observed in turkey, in sectors such as education, rental services and hospital services, with prices falling at a slower pace for the services group compared to the commodities group, is an example of this. it is crucial that measures to increase competitiveness in these sectors are taken promptly in order to eliminate this distorted structure and also in terms of the risk it constitutes to the inflation target in future. a second point in connection with this is that ; it is inevitable that in time, together with healthier price signals, the resources of our economy will shift to firms and sectors with higher productivity, as was the case in other countries. the firms and sectors that had benefited from the consumption and pricing habits of the inflationary environment, but could not work efficiently, will be leaving their places, in this process, to more competitive firms and sectors with higher productivity. dear audience, at this point, i wish to mention an issue, regarding the changes in the pricing policy of producers, extremely significant in terms of its effect on the future course of inflation. this is the process of exchange rate affecting inflation, known also as the pass - through effect. the effect of exchange rate on inflation in turkey is weakening day - by - day, due to the changing pricing patterns of producers as a result of the decline in inflation. as observed especially in the recent period, the impact of the movements in exchange rate on inflation began to materialize less than expected, and also at a lower level and in a more lagged fashion compared to the past chronic inflation period. as a matter of fact, the pass - through effect of exchange rate movements on prices has been weakening worldwide, in environments where price stability has been ensured thanks to highly reliable monetary policies, attributable to the facts that pricing in domestic currency is widespread, and owing to low and stable inflation, losses of value in the domestic currency

sureyya serdengecti : falling inflation opening remarks by mr sureyya serdengecti, governor of the central bank of the republic of turkey, for the conference on " real sector and financial sector in the environment of falling inflation ", organised by the banks association of turkey, ankara, 28 september, 2004, and given at the monthly meeting of ankara chamber of commerce, ankara, 29 september 2004. * * * dear guests, in my speech today, i would like to dwell on the “ environment of “ falling inflation ”, its main impacts on economy both in other countries and turkey and finally, the significance of maintaining price stability for turkey ’ s economy. the achievements obtained on the inflation front in the last three years under the current program allow us to speak about falling inflation environment and permanent price stability. now, let me briefly review the point we have reached in the fight against inflation : cpi inflation, which was 68. 5 percent at the end of 2001, remained below the targets set in 2002 and 2003 and fortunately, it realized as 18. 4 percent at the end of 2003. in 2001 - 2003 period, the total decline in inflation exceeded 50 points. in august, cpi inflation fell to 10 percent thanks to the stability program, which was determinedly carried out in 2004, and the tight monetary and fiscal policies implemented within the framework of this program. looking at the cpi inflation today, i do not see any serious problem that would prevent us from reaching the 12 percent - cpi inflation target for 2004. however, despite the success attained in reducing inflation, i would like to underline the fact that we have not reached our final target yet. turkey is one of the very few countries where double - digit inflation prevails. as i have mentioned repeatedly both at the very beginning of the disinflation program and the point we reached today, our final target is to achieve and maintain price stability. now let me emphasize once more what price stability stands for. the well - known definition of price stability relates to the currently low inflation rate in one hand, and the expectation of economic agents that the ongoing decline in inflation will continue in the future. such an inflation rate is so low that people do not need to take it into account in their investment, consumption and saving decisions. at the point we have reached in inflation, it is clear that our economy is surviving from chronic inflation. however, i would like to draw your attention to the fact that we have not fully maintained