Altınsoy Koç

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Executive Summary

Between the most recent observation period and the prior cycle, the global economy has exhibited both robust real expansion and moderate price pressures. The world’s aggregate real output expanded by nearly 9%, while the supply of U.S. dollars in circulation increased by approximately 14%. The consequence of this divergence has been a measured rise in the global price level, with implied inflation running at an estimated 4.7% under the assumption of stable monetary velocity.

This dynamic suggests a global system in which productive capacity continues to expand, but monetary authorities, either through deliberate policy or institutional inertia, have permitted liquidity to grow somewhat faster than real output. The outcome is a world in which inflation is present, but remains contained, and where growth has thus far offset the more destabilizing potential of monetary expansion.

Key Data

Indicator	Previous Period	Current Period	% Change
USD in Circulation	$317.55 Bn	$361.82 Bn	+13.9%
Global GDP	$204.22 Bn	$222.36 Bn	+8.9%
Implied Price Level (M/Y)	1.554	1.627	+4.7%

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1. Real Output Expansion

The nearly 9% increase in global GDP represents a notable acceleration relative to historical trends in many advanced economies. This suggests either a period of post-crisis recovery, technological diffusion, or expanded trade integration. The growth appears broad-based, as the aggregate measure captures all regions and sectors. Importantly, this expansion in productive capacity has mitigated upward pressure on prices that might otherwise have been more acute given monetary conditions.

2. Monetary Expansion

U.S. dollars in circulation rose by nearly 14%. Whether this reflects deliberate policy easing, financial innovation increasing dollar availability, or the monetization of public obligations, the effect is unmistakable: liquidity grew faster than the real economy. Ordinarily, such a differential might herald double-digit inflation; however, the contemporaneous increase in real output absorbed much of this monetary growth, resulting in a comparatively modest 4.7% inflationary effect.

3. Inflationary Dynamics

The price level index increased from 1.554 to 1.627. While this is not insignificant, it is best characterized as moderate inflation. Such a level is consistent with sustained expansion, but it should serve as a warning sign: should monetary growth continue at its current pace without a commensurate increase in output, inflationary pressures could accelerate sharply in future cycles.

4. Implications for Policy and Markets

• Policy Makers: Central monetary authorities face a delicate balance. Continuing the current trajectory risks embedding higher inflation expectations, while premature tightening could undercut ongoing growth.
• Financial Markets: Equities may benefit from the robust real growth, though fixed income markets are likely to price in higher inflation premia. Commodities, especially those with dollar-based settlement, may strengthen further if inflation persists.
• Global Trade and Capital Flows: A dollar expansion of this magnitude can export inflationary pressures abroad, especially in economies with dollar pegs or heavy dollar-denominated debt.

Forward-Looking Risks

1. Velocity Uncertainty: This analysis assumes stable monetary velocity. Should velocity increase (reflecting higher transaction intensity), inflation could rise meaningfully above the current estimate.
   
   
2. Policy Misalignment: An overextension of monetary accommodation could destabilize price stability in subsequent cycles.
   
   
3. Geopolitical Shocks: Global integration makes the system vulnerable to disruptions, whether through supply chain fragmentation, resource conflict, or shifts in trade alignments.

Conclusion

The global economy is presently in a phase of vigorous real expansion, tempered by moderate but noticeable inflation. While current conditions remain broadly favorable, they carry the seeds of potential instability should monetary supply continue to outrun real productive growth. For now, the balance remains positive, but vigilance is warranted.

From an investor’s standpoint, the environment favors equities and risk assets in the near term, though a prudent inflation hedge is increasingly advisable. Policymakers must navigate carefully to preserve this equilibrium, lest inflation accelerate beyond the manageable 4–5% range observed in this period.

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Prepared by:
Altınsoy Koç Credit Analysis Division
Monetary Policy & Inflation Strategy Team – Türkiye Office

Authors:

• Korhan Celik, Senior Economist, Inflation & Macro Policy
• Bayrak Cerci, Vice President, Central Bank Analysis
• Akburc Ermis, Associate, Macro-Financial Strategy
• Arier Tarhan, Analyst, Global Inflation Dynamics
• Erdemer Yener, Research Associate, Monetary Policy Analytics

Reviewed by:

• Dr. Selim Kaya, Managing Director, Head of Monetary Policy & Inflation Strategy

Distribution:
For internal use only. Not for external redistribution without prior authorization.