Income groups and inflation in Turkey

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2016

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Akçelik, Fatih

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Official inflation figures represent the inflation of a typical (representative) household in an economy. However, each household has its own consumption behavior and pattern, which depends on demographic characteristics and the income. Relative price variability and the weight divergence of consumer items across households are high in the developing countries due to structural problems, convergence process and income inequality. Therefore, inflation exposure differential across households is more pronounced in the developing countries. We analyze inflation differentials across income and demographic groups in Turkey over the last 12 years by using Household Budget Survey (HBS) and consumer price data of TurkStat. We find that poor households are exposed to higher inflation than rich households on average in Turkey. Inflation exposure differentials are highly volatile due to frequent supply shocks. More importantly, as income gap widens, inflation inequality across households increases. While main upside contributors to inflation differential are bread and cereals, vegetables, tobacco products, rent and solid fuels, main downside contributors are automobile, motor fuel products and services. Moreover, we conclude that the inflation of poor households is more sensitive to shocks to food prices, while that of rich households is more sensitive to exchange rate and import price changes in Turkey.

Subject Keywords

Inflation (Finance)., Income distribution., Purchasing power., Consumption (Economics).

URI

http://etd.lib.metu.edu.tr/upload/12619833/index.pdf
https://hdl.handle.net/11511/25541

Collections

Graduate School of Social Sciences, Thesis

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Citation Formats

F. Akçelik, “Income groups and inflation in Turkey,” M.S. - Master of Science, Middle East Technical University, 2016.