Turkey gets richer, citizens get poorer

The Consumer Price Index (CPI) increased by 2.27% in February, bringing annual CPI inflation below 40%, down to 39.05%. This figure is seen as creating a favourable environment for the Central Bank to implement another 2.5 percentage point interest rate cut on March 6. However, these figures have raised doubts. The İstanbul Chamber of Commerce (İTO), which aligns its data with the Turkish Statistical Institute (TÜİK) basket, reported February inflation at 3.19%. Meanwhile, according to the Economic Policy Research Foundation of Turkey (TEPAV), food prices increased by 3.70% in February 2025, whereas TÜİK reported 3.17% for monthly food inflation. The reliability of TÜİK’s data continues to be questioned.

MANIPULATION IN HEALTHCARE

A key factor artificially lowering February’s CPI was a 4.38% drop-in healthcare services. In January, the healthcare sector had seen a 23.57% increase, but rolling back price hikes made February’s inflation figures appear lower. Healthcare has a 4.09% weight in the CPI basket, meaning a 4.38% decline contributed negatively by 0.18 points. The remaining inflation for all other sectors combined stood at 2.55%, which is already lower than what is felt in daily life.

While estimating inflation based on personal observations may be suspicious, I can personally attest that in February, every tea, soup, or grocery item I purchased had increased in price, even if the hikes were subtle.

THE WEALTHY SAVE, THE POOR BORROW

The 30-point gap between goods prices and skyrocketing service prices persisted in February at 29.25 points. Particularly, the 97.21% rent inflation continues to crush low-income tenants. Similarly, transportation services, which are vital for workers, recorded an inflation rate of 49.81%, surpassing the headline rate.

A study in the Central Bank’s Journal, titled “Monetary Tightening and Consumption Spending by Income Level”, found that high-income groups are increasing their savings in response to high interest rates while reducing their spending. Conversely, low-income groups—who lack the ability to save—are continuing to spend, often by taking on debt.

Moreover, a portion of these expenses is being financed through borrowing. Many citizens, who now allocate a significant share of their income to credit card and consumer loan interest payments, must manage all their remaining expenses with what little is left, making them feel the impact of inflation even more acutely.

Economic officials will continue to boast: "Inflation has fallen below 40%, and it will decrease further." However, the remaining 10 months of 2025 do not include the high monthly inflation carryovers of around 4% from 2024. This means that inflation is unlikely to decline rapidly. To meet the 24% end-of-year target, average monthly inflation must be 1.3%, which seems impossible.

Last week, fourth-quarter growth data was also released, revealing that Turkey's economy grew by 3.2% in 2024. This is below the 4-4.5% estimated potential growth rate. The Medium-Term Program (OVP) had projected 4% growth and 33% inflation for 2024. However, the actual figures—3.2% growth and 44.4% inflation—fell short of targets.

Looking at the sectoral composition of growth, it is yet another copy-paste version of AKP-era trends, with construction growing by 9.3% as the primary driver. While finance and insurance grew by 4.9%, agriculture by 3.9%, and services by 3.1%, industry barely moved, rising only 0.5%.

THE EXCHANGE RATE PARADOX

The most striking figure was the announcement that per capita income had risen to $15,463. This inevitably raised the question among citizens: "If I feel poorer, who exactly is getting richer?" If you are a high-income individual, spending your money on overseas travel or using services priced in foreign currencies, such as staying in five-star hotels, you may have indeed experienced an increase in wealth. In 2024, consumer inflation was 44.4%, while the euro appreciated by only 13% and the dollar by 20%. As a result, those whose income rose in line with TL inflation saw their money’s foreign currency equivalent increase. Unfortunately, ordinary citizens earning in TL, whose income barely covers basic necessities like bread, cheese, and milk, were unable to share in this prosperity. And if Turkey experiences another currency shock similar to 2018 or 2021, dollar-based incomes could plummet overnight.

INCOME DISTRIBUTION REMAINS UNJUST

Another significant point in TÜİK’s data was that the share of labour compensation in total value-added output rose from 32.5% in 2023 to 37.9% in 2024—although it remains low. This does not necessarily mean that individual workers saw real wage increases. As Aziz Çelik detailed in his column yesterday, 600,000 additional retirees began receiving pensions in 2024, while the number of retired individuals who continue working reached 2.1 million. Since the percentage of wage earners in employment increased, this created the illusion that labour income was rising.

WORSENING TRADE DEFICIT

Last week's foreign trade statistics showed that in January 2025, the trade deficit surged by 21.9% compared to the previous year, reaching $7.538 billion. While exports grew by 5.8% to $21.165 billion, imports jumped by 9.6% to $28.703 billion.

The government aims for a balanced trade account, excluding energy and non-monetary gold. However, even after excluding these, the January trade deficit still stood at $1.336 billion, signalling potential challenges ahead.

One of the most concerning trends was the 20.6% year-on-year increase in consumer goods imports. The monthly consumer goods import bill reached $3.992 billion, surpassing the share of investment goods imports, which stood at 13%. This is an alarming pattern. Ideally, a country should allocate foreign currency to importing investment goods that boost future production capacity. Instead, more money is being spent on imports to satisfy the insatiable consumption appetite of the wealthy, highlighting the deepening divide between different economic classes.

Note: This article is translated from the original Turkish version titled Türkiye zenginleşiyor, yurttaş fakirleşiyor, published in BirGün newspaper on March 4, 2025.