IE 347 FALL 2022 / 2023

December 26 – 28, 2022 - Week 13

 Announcements

Recitation – this week

Case Study – latest Jan 2, Monday

Quiz 3 – Jan 4, Wednesday, 5:40 p.m.

 IE 347 Week Topics

INFLATION

25.12.2022
 Inflation

Inflation is an increase in the price of goods and services

with no change in quality

25.12.2022
 Inflation

A bread costs 1 TL in 2020 costs 1.1 TL in 2021 and 1.21 TL in

2022. This represents an annual increase of 10%

The price of a commodity in 2022 is 1 TL in year 2020 dollars

Too much money buys too few goods/services

The value of the currency changes downward in value

1 TL now 1 TL in 2020 1 TL in 2024

25.12.2022
 Inflation

The monthly and annual inflation rates are closely

watched and historically analyzed by government
agencies and industrial corporations
Ministry of Treasury and Finance
Turkish Statistical Institute (TÜIK)

25.12.2022
 Inflation

• Producer Price Indices

Manufacturing
Energy
Mining
Agriculture

• Consumer Price Indices

25.12.2022
 Inflation - from the News Bulletins of TUIK

Türkiye İstatistik Kurumu (TÜİK)

TÜİK tarafından açıklanan verilere göre enflasyon aralık ayında yüzde 1,25
artarken, yıllık bazda yüzde 14,60 oldu. -- January 2, 2021

TÜİK tarafından açıklanan verilere göre enflasyon aralık ayında yüzde 13,58
artarken, yıllık bazda yüzde 36,08 oldu. -- January 3, 2022

TÜİK tarafından açıklanan verilere göre enflasyon aralık ayında yüzde 2,88
artarken, yıllık bazda yüzde 84,39 oldu. -- December 5, 2022
Next announcement - January 2, 2023

25.12.2022
 Inflation - from News Bulletin of TUIK – Jan 3, 2022

25.12.2022
Inflation - from the latest News Bulletin of TUIK (Dec 5, 2022)

25.12.2022
Inflation - from the latest News Bulletin of TUIK (Dec 5, 2022)

25.12.2022
Inflation - from the latest News Bulletin of TUIK (Dec 5, 2022)

25.12.2022
 Inflation

Money Supply

Foreign Currency

Interest Rate

Scarcity of Resources

Cost Push

Demand Pull

25.12.2022
 Inflation – G20 Countries
Ülke Son Önceki Referans
Çin 1.6 2.1 2022-11
Suudi Arabistan 2.9 3 2022-11
İsviçre 3 3 2022-11
Japonya 3.8 3.7 2022-11
Güney Kore 5 5.7 2022-11
Endonezya 5.42 5.71 2022-11
Hindistan 5.88 6.77 2022-11
Brezilya 5.9 6.47 2022-11
Fransa 6.2 6.2 2022-11
Singapur 6.7 6.7 2022-11
Kanada 6.8 6.9 2022-11
İspanya 6.8 7.3 2022-11
ABD 7.1 7.7 2022-11
Avustralya 7.3 6.1 2022-09
Güney Afrika 7.4 7.6 2022-11
Meksika 7.8 8.41 2022-11
Hollanda 9.9 14.3 2022-11
Almanya 10 10.4 2022-11
Euro Bölgesi 10.1 10.6 2022-11
İngiltere 10.7 11.1 2022-11
İtalya 11.8 11.8 2022-11
Rusya 12 12.6 2022-11
Türkiye 84.39 85.51 2022-11
25.12.2022
Arjantin 92.4 88 2022-11
 Inflation – All Countries

Iran 52.2 54 Aug/22

Sri Lanka 61 66 Nov/22
Turkey 84.39 85.51 Nov/22
Argentina 92.4 88 Nov/22
Sudan 103 107 Oct/22
Syria 139 134 Aug/20
Lebanon 142 158 Nov/22
Venezuela 156 157 Oct/22
Zimbabwe 255 269 Nov/22

25.12.2022
 Inflation

• Hyperinflation: Too high levels of inflation

• Deflation: Negative levels of inflation

25.12.2022
 Inflation – Africa

Ülke Son Önceki Referans

Güney Sudan -2.5 6.43 2022-08

Seyşeller 2.62 2.92 2022-11

Orta Afrika 2.7 4.2 2021-12
Cumhuriyeti
Ekvator Ginesi 2.9 3 2021-12
Benin 3.2 2.1 2022-11
Nijer 3.49 3.02 2022-11
Libya 3.8 4.1 2022-11
Eritre 4.5 4.8 2021-12
Tanzanya 4.9 4.9 2022-11
Svaziland 5.5 6.7 2022-10
Gabon 5.7 5.8 2022-10
Fildişi Sahili 5.7 6.2 2022-11
Cibuti 6.1 5.9 2022-09
Somali 6.4 6.9 2022-11

25.12.2022
 Inflation

When deflation is present, the purchasing power of monetary unit

is greater in the future than at the present time.

Temporary price deflation may occur in specific sectors of the

economy

However, if deflation occurs at a more general level, nationally

accompanied by the lack of money for new capital

Depression

25.12.2022
 Inflation

Inflation is one of the most important indicators of the healthy

economy

Other important indicators

Growth Rate – 6.7% (Jan 2021)
7.4% (Oct 2021)
7.6% (Oct 2022)

Unemployment Rate – 12.9% (Feb 10, 2021 for Nov 2020)

11.2% (Jan 10, 2022 for Nov 2021)
10.2% (Dec 12, 2022 for Oct 2022)

25.12.2022
 Inflation

The inflation rate, f, is a percent per time period

Stated in a manner similar to interest rates

f = 10% per year inflation, $100 today requires $110 to buy the same
amount next year.

1-20
 Inflation

f = 10% per year inflation, $100 today requires $110 to buy the same
amount next year.

25.12.2022
 Inflation

Money in time t1 can be related to money in time t2 as follows:

Money in time t1 = Money in time period t1 + 1 / Inflation rate per year

100 TL in year t1 110 TL in year t1 + 1

Money in time t1 = Money in time period t2 / Inflation rate between t1 and t2

100 TL in year t1 121 TL in year t2

25.12.2022
 Inflation

• n = time between t1 and t2

• Money (Dollars) in period t1 are termed:

– Constant-value dollars or today’s dollars

• Dollars in time period t2 are termed:

– Future dollars or then-current dollars.

Today’s Dollars = Future Dollars /(1+f)n

1-23
 Inflation

Assume a firm desires to purchase an asset that costs $100 in

today’s dollars

Assume a reasonable inflation rate of, say, 8% per year

In 9 years, that same piece of equipment would be

purchased

1-24
 Inflation

• Assume an inflation rate of, say, 50% per year (hyperinflation)

In 9 years, that same piece of equipment would be purchased

• Assume an inflation rate of, say, 85% per year (hyperinflation)

In 9 years, that same piece of equipment would be purchased

• Assume an deflation rate of, say, 5% per year

In 9 years, that same piece of equipment would be purchased

1-25
 Inflation

• Recall that the future impact on cost is significant!

• We have not considered the time value of money, yet

• A proper engineering economy analysis should consider both

inflation and the time value of money.

1-26
 Inflation

There are three important rates:

Inflation rate: f
is a measure of the rate of change in the value of the currency

Real or inflation-free interest rate: i

Represents an actual gain over the purchasing power

Inflation-adjusted interest rate: if

is the interest rate that takes inflation into account -- market interest rate

25.12.2022
 Inflation

Given a real interest rate, i; and the inflation rate, f;

Find the market interest rate

1-28
 Inflation

Given a real interest rate of 3%/year and the inflation

rate of 8%/year, find the market interest rate

1-29
 Inflation

Given a market rate of interest, if;

and the inflation rate, f;

• Find the real interest rate.

1-30
 Inflation

• The real rate, i

• If f > if a negative real interest rate will

result

1-31
 Inflation

Find the real interest rate for a market interest rate

of 11% and inflation at 9%.

Find the real interest rate for a market interest rate

of 11% and inflation at 12%.
f > if

1-32
 Inflation

Find the real interest rate for a market interest rate

of 20% and inflation at 85%.
f >> if

1-33
 Inflation

25.12.2022
 Inflation

The actual amount of money that will be

accumulated at time n.

The actual amount accumulated at time n,

stated in today’s dollars.

The amount of future dollars needed at

time n to maintain the same purchasing
power as today.

The amount of dollars required at time n to

maintain purchasing power and earn a
stated real interest rate.
25.12.2022
 Inflation

The inflation rate is 4% per year

The market interest rate is 10% per year
P = $1000
A future amount F over a 7-year period

The actual amount of money that will be accumulated at time 7.

The actual amount accumulated at time 7, stated in today’s dollars.

The amount of future dollars needed at time 7 to maintain the same

purchasing power as today.

The amount of dollars required at time 7 to maintain purchasing power

and earn a stated real interest rate.

25.12.2022