Inflation storm worsens Turkey’s income distribution gap (Al Monitor, April 20,2022)

Turkey’s galloping inflation, on course to top 100% in the fall, has been causing daunting income transfers from the poor to the rich, worsening further the income distribution gap in the country, economic data show.

Annual consumer inflation, which stood at less than 20% in September 2021, skyrocketed in six months to reach 61.1% in March. The sharp uptick has rendered pay rises in the beginning of 2022 irrelevant, stoking real income losses. Along with wage- and salary-earners, agricultural producers, too, have taken severe blows from inflation, with the gap between agricultural product prices and industrial prices growing to the detriment of farmers.

Banks and big companies, meanwhile, have cashed in on Ankara’s controversial policy to keep interest rates low despite soaring prices. Against consumer inflation of 61.1%, the central bank’s policy rate stands at 14%, unchanged since December, which has benefited banks and corporate loan users, as evidenced by profit statements made to the stock exchange.

Turkey’s chronic income inequalities, which had already worsened in 2021, appear on course to reach staggering levels this year. Economic growth data by the Turkish Statistical Institute show that payments to employees last year dropped to 30.2% of gross value added from 33.1% in 2020, while the share of net operating surplus/mixed income, earned by employers, rose to 52.6% from 49.3% in the same period. This is a clear indication of income transfer.

Economic data from the first quarter of 2022 show that the inequalities have deepened amid the high inflationary environment that is fast eroding the purchasing power of the minimum wage, public-sector salaries and pensions. According to trade unions, the monthly cost of a healthy and balanced diet rose to nearly 6,000 Turkish liras ($410) for a family of four in March, soaring well above the minimum wage.

In what was meant as a big gesture to wage earners, President Recep Tayyip Erdogan announced a 50.5% rise of the minimum wage at the turn of the year, bringing it to 4,253 liras ($290) from 2,825 liras in 2021.

Employment in Turkey stood roughly at 29 million at the turn of the year. About 20 million of those people earn monthly salaries or daily wages, and nearly half of them are paid the minimum wage or slightly higher salaries. In other words, the minimum wage is not just a reference floor but has become the prevalent pay in Turkey.