According to the official TUIK data released yesterday, we closed 2023 with 64.77 percent inflation, very close to 2022 (64.27). (Inflation was 75 percent according to ITO and 121 percent according to ENAG.) The Hunger Limit (Food Expenditure of a Family of 4), another price increase indicator, increased by 80 percent to TRY 14,025. In the same period, the net minimum wage increased by 100 percent (from TRY 8507 to TRY 17002). When viewed in this way, one might conclude that the increase in the minimum wage was, by most calculations, sufficient. However, since the minimum wage is determined twice a year (once this year) and prices are constantly rising, the contribution of the increases to purchasing power starts to erode the very next day.
I was arguing that if we wanted to show determination in the fight against inflation, it would have been better to adjust wages twice a year (25+15, for example) so that the erosion of purchasing power would be somewhat less and the extra acceleration of inflation caused by a single high rate adjustment would be avoided. This was not preferred. Now, we will follow the inflation rates coming after this month. Especially, the rates of the first 5 months will be very effective in determining the year.
When we analyze the 2023 inflation by main expenditure groups, we come across interesting data. The groups with the highest weight in the index are food (25 percent), housing (17 percent) and transportation (15 percent). Of these, food has a much higher weight in the expenditure basket of lower income groups. However, unfortunately, the rate of price increase in this product is 72 percent, well above the CPI. Moreover, the increase in food prices was above the CPI in the previous 2 years (8.6 points above the CPI in 2021 and 12.5 points above the CPI in 2022.) However, it should be emphasized that there is a difference between this year and the other 2 years: World food prices increased by 26 percent in 2021 and 12 percent in 2022, but decreased by 15 percent last year. From this point, we see that the increase in food prices, especially this year, is not due to world markets and is specific to our country. Inadequate reform efforts in agriculture and animal husbandry must be one of the main reasons for this.
This year, housing rent increases were one of the hottest topics on the agenda. The introduction of a 25 percent limit on increases in June was much discussed. However, despite this, the rent prices increased by 109 percent! A 25 cubic meter exemption for natural gas use in homes and a significant discount was applied to electricity during the year. Thus, electricity and gas prices were reduced by 3.5 percent, while the increase in total housing expenditures was limited to 40 percent. However, the subsidies are expected to be largely reversed this year, and thus price increases in this expenditure group can be expected to hover above the average inflation rate.
The impact of food and transportation sub-expenditure groups on inflation was 30 percent, almost half of the total inflation. In the Restaurants and Hotels group, which made the third-highest contribution to inflation with 7.4 percent despite its relatively low weight in the total, the determining factor was food prices with an increase of 97 percent. While the increase in food inflation was 72 percent, the much higher increase in catering prices indicates that the services sector is more comfortable in pricing.
This trend in the services group can also be seen in the core inflation data. In particular, the annual increase of 75 basis points each in the “B” and “C” indices in December is not a positive development. Since the services sector caters mostly to the middle and upper middle-income groups with higher incomes and less vulnerability to inflation, and since they are less competitive, they seem to have been able to increase their prices more easily than other groups. Moreover, while the upward and downward elasticity of prices is higher in the more competitive industry-based sectors, this is not the case in the services sector. From now on, the fight against inflation should focus more on monitoring services sector pricing.