As Turkey’s inflation slows in November, all eyes on pay hikes

Turkey’s annual consumer inflation eased to 84.4% from a 24-year high of 85.5% in November, slowing for the first time in 18 months, official data showed on Monday.

Prices rose 2.9% on a month-on-month basis in November, the Turkish Statistical Institute said. Turkey’s inflation has been fueled by unprecedented rate cuts by the central bank from September 2021, sending the Turkish lira into a tailspin.

The fall in the annual inflation rate was in line with expectations and largely owed to the statistical effect of a higher base in the same month last year. Monthly price increases have averaged 3.5% over the past two years. Although they still topped 3% in December, annual inflation is expected to fall somewhere between 65% and 70% due to a favorable base effect. Although the annual rate is falling, consumers are likely to face monthly price increases of 3% to 4% on average next year.

President Recep Tayyip Erdogan – who is leading a tough reelection test after two decades in power – is expected to portray the annual decline as proof that his controversial economic policy is paying off. “Are we down to single digit on interest rate? We did. And it goes on like this. Don’t worry, inflation will also come down,” he said in a speech recently. The central bank offered rate cuts at the behest of Erdogan, who held the unusual view that high interest rates lead to high inflation. Last month, the bank cut its policy rate by 150 basis points to 9%, bringing it to single digits as requested by Erdogan.

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Notably, food prices – the main driver of Turkey’s inflation and a prominent complaint – rose 5.75% in November from the previous month and 102.5% year-on-year. Food inflation is likely to stick as prices of key agricultural commodities such as fertilizers, diesel, pesticides and fodder rose to 138% year-on-year in September, but long-standing structural problems continue to plague the sector and government support for farmers remains limited. .

Meanwhile, Monday’s data show that producer inflation rose 0.74% on a monthly basis in November to 136% annualized. The 51.5 percentage-point difference between producer and consumer inflation shows that the reflection of producer prices on consumer prices has a long way to go.

The rate of inflation is based on wage increases at the beginning of the year. Of the nearly 32 million people working in Turkey, 22 million – 69% – are wage earners, according to September data. About 5 million of them are government employees, who are relatively protected from inflation as they receive pay increases covering the previous six months’ inflation twice a year. The same is true for nearly 13 million pensioners. In the first half of 2023, wage increases for public servants and pensioners are expected to reach 18.5% and 15%, respectively.

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As for the private sector, the monthly minimum wage has risen rampantly over the years, making it the salary of nearly 17 million wage earners in the private sector.

In the European Union, according to Eurofound data, around 4% of employees work for the minimum wage or slightly above, while the rest’s wages are largely determined by collective labor agreements. In Turkey, 43% of employees in non-agricultural sectors earn the minimum wage or less, compared to 50% in industry, a central bank survey shows. The rate is 54% in the construction sector, at least 59% in the textile and clothing sector, 65% in the food industry and 72% in the tourism sector.

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The main reason for this phenomenon in Turkey is that millions are unable to exercise their constitutional right to unions, collective bargaining and strike due to pressure from employers. According to official data, less than 10% of employees benefit from collective labor agreements, a rate that falls below 6% in the private sector.

The minimum wage and other hikes will be announced later this month, with June at the latest in a political climate that marks the upcoming election. Erdogan is widely expected to use the hikes as an election gimmick.

Turkey’s largest confederation of workers’ unions, TURK-IS, has said it wants to raise the minimum wage from 5,500 liras ($295) to at least 7,785 liras ($418) ahead of talks with the government. Its position came under fire last month after it announced the same amount as the hunger threshold – the monthly cost of a healthy diet for a family of four.

However, speculation was rife that Erdogan would greenlight the sum of around 10,000 liras ($536) — raising eyebrows among employers.


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