Getting Real? The Uneven Burden of Inflation across Households in Turkey
Inflation is typically measured using aggregate price indices that are based on bundles of goods and services sold or consumed by the “median” agent. In the case of households, in particular, budget shares vary substantially across income and demog...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/undefined/700111638283851455/Getting-Real-The-Uneven-Burden-of-Inflation-across-Households-in-Turkey http://hdl.handle.net/10986/36645 |
| Summary: | Inflation is typically measured using
aggregate price indices that are based on bundles of goods
and services sold or consumed by the “median” agent. In the
case of households, in particular, budget shares vary
substantially across income and demographic groups.
Assessing how inflation behaves at the household level
requires understanding how heterogenous changes in consumer
prices affect household choices and well-being differently.
In recent years, price increases have been particularly high
in Turkey, with double-digit inflation starting in 2017 and
intensifying in 2018 and 2020 due to exchange rate
volatility, macroeconomic instability, and the economic
disruption brought about by Covid-19. This paper calculates
income-decile price indices to examine the inflation
experience across income groups and discusses their
implications for household welfare. Households in the first
decile allocate nearly 70 percent of their budget to food
and housing, twice as much as the corresponding share for
the typical household in the upper decile. Inflation
measures that consider these heterogeneities in expenditures
show a higher burden for the poor in recent inflation
episodes driven by rapid increases in food prices (2013,
2015 and 2019). In 2015, for instance, 342,000 additional
people would have been deemed poor (an increase of 4.2
percent) had the poverty calculations taken into account the
actual inflation experience of poor and vulnerable
households. A methodological extension of the World Bank’s
upper-middle-income poverty line ($5.50 2011 purchasing
power parity) that takes into consideration the inflation
experience of the bottom deciles yields higher poverty rates
for Turkey every year between 2011 and 2020. |
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