Inflation and poverty
Because the minimum wage, public sector salaries and wages in general are adjusted according as electoral cycles evolve, they are somewhat detached from economic fundamentals.
● True, inflation counts when you revise wages upwards continually; at least official inflation matters. But politics count possibly more because there have been a lot of elections and referenda in the last decades.
● On the other hand, the cost of living is so high that no matter what productivity increases can catch up with that. Already the poverty line is set at TL 57.737/month for a family of four.
● The minimum wage stands at TL 17.000 and the starvation limit is TL 17.725. So, which logic should we follow? People cannot live with that income except perhaps if they have inherited a home and if they live in small towns or unless they enjoy family support of some sort.
● Yet disinflation requires a drastic reduction in consumption demand and households cannot unfortunately be exempt from that. However, the wealth and earnings distribution is so unequal that there is not much room therein.
● You cannot say to already poor people they should and will be even poorer for a couple of years if inflation is to fall. In order to say this you have to fix things first. You should also be very credible perhaps by adopting a formal fiscal rule.
● Now inflation borders 70%, vindicating the peak estimate of 70-75% in May. From there, it will possibly fall to 40-45%. The CBRT thinks the rest will come, and once the favourable base effect dies off, we will not be back to square one. Even if we will not, is 40% or 30% for that matter really ‘disinflation’?
● While I sympathize with what the CBRT has been doing recently, I do not think it will conquer inflation if left alone. It seems that some kind of credit rationing will be attempted, but even this is not the solution.
● The solution lies in a head-on, persistent and comprehensive approach. There is price to pay. For instance, unfortunately, neither the housing nor the car markets will fly with high colours shortly, i.e. not this year.