Inflation’s toll on the rich and poor

From the 1970s to the 2000s, Türkiye struggled with high and persistent inflation. However, policies implemented in the early 2000s largely resolved this issue. For about a decade, the global and local economies seemed to be on track. However, the global inflation wave following the COVID-19 pandemic disrupted all economies. Monetary and fiscal policies aimed at reducing inflation added an extra financial burden to the middle and lower-income groups. As a result, the purchasing power of those on fixed incomes decreased, and minimum-wage workers and retirees suddenly found themselves among the impoverished. On the other hand, while some individuals with movable and immovable assets were protected from the crushing effects of inflation, land and property owners saw incredible wealth gains.

**

The recent focus on monetary policy and the general economic outlook is analyzed in the Economics Monitoring Report 2023 and Monetary Policy Report prepared by ILKE Foundation's IKAM. The report emphasizes that the failure of the regulations to combat inflation to gain market acceptance has led to deteriorated expectations. The Economics Monitoring Report 2023, presented to the public at an event in Istanbul on June 4, 2024, examines inflation-reducing policies, economic uncertainties caused by the Russia-Ukraine war, the genocide in Gaza, disruptions in the Suez Canal, the February 6 earthquake in Türkiye, general elections, central bank decisions, and the economic impact of implemented monetary policies.

**

According to the report, the prolonged implementation of domestic expansionary policies after the 2008 global financial crisis created an economy reliant on borrowing for growth. After 2013, productivity in the economy began to decline, and short-term approaches and demand shocks were used to support growth. From 2017 onwards, inflation rose to double digits, and both price stability and budget discipline began to deteriorate. The report indicates that these structural problems remain unresolved. Rising commodity prices have increased corporate profitability, but also driven up costs, spreading price pressures across sub-sectors and creating temporary monopolies that further pushed prices up. During this period, real wages eroded, and efforts to compensate for wage declines were criticized for potentially causing further inflation. The increase in corporate profitability significantly contributed to inflation. In 2023, corporate tax revenue based on declarations increased by 2000% compared to the previous year, while income tax collected at source only rose by 94.3%. Considering the annual inflation rate of 64.77% reported by TÜİK, the report notes that there was no significant increase in income tax collected at source.

**

The report highlights that inflation inertia has become a significant source of inflation. The inability to break high inflation expectations and the continuous indexing of pricing behaviors to past inflation contribute to inflation inertia. Additionally, the high inflation since 2021 has distorted consumer price perceptions, providing pricing firms with opportunities to increase profits. Profit margins rising above costs have exacerbated the negative impact of pricing behaviors on inflation. Approximately 15% of annual inflation is attributed to distortions in pricing behaviors.

**

The report also emphasizes that inflation has eroded societal morals. In economic life, sellers of all sizes, from small market vendors to high-level executives, no longer content themselves with fair earnings, seeking instead to protect their income levels or achieve high profits. This pervasive unethical behavior spans from fraudulent vendors at markets to bureaucrats, landlords, and executives in high-rise offices. If the economy had ethics, global companies would not support those killing children in Gaza.