01/13/2022, 13.39
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Inflation and economic crisis weaken Turkey’s middle class

The country is increasingly exposed to austerity. The forecasts for 2022 point to higher inflation, above last year’s rate of 36 per cent, a record since Erdogan came to power. By raising taxes on alcohol and tobacco, the government winks at Islamic radicals, but further cuts spending.

Istanbul (AsiaNews) – Rising inflation, including higher prices for food and basic necessities, has hit Turkey’s middle class hard, leading to greater impoverishment.

In an atmosphere of austerity, more and more people are forced to reduce spending across the board, including transport, dining out, leisure and entertainment

The problem goes beyond the lower socioeconomic strata of society, dampening overall consumer demand, this according to an-depth report by al-Monitor.

Inflation forecasts for 2022 expect prices to rise higher than the 36 per cent reported last year, the highest rate since Turkey’s Justice and Development Party (AKP) came to power 19 years ago under Turkish Prime Minister, later President Recep Tayyip Erdogan.

Turkish consumers started the new year with a spate of price hikes in utilities and services – electricity, natural gas and transportation – as well as higher commodity prices.

The monthly inflation rate in January is expected to be 15 per cent, up from 13.5 per cent in December. Double-digit rates are expected in February and March as well.

The army of unemployed – 3.8 million job seekers plus over 4 million who have given up – is the first to suffer the effects of the crisis.

The government recently raised the minimum wage by 50 per cent to 4,250 Turkish liras (around US$ 307), in an attempt to shield low-paid workers from inflation. However, by next March, the impact of the pay hike should lessen, with the value of real income further eroded.

Even high-wage workers and small self-employed entrepreneurs in both cities and countryside, the hard core of the middle class, are not immune, forced to abruptly adjust their living standards and consumption patterns.

Higher prices entail lower spending. In the auto sector for example, fewer people are expected to buy new cars after prices rose by 50 per cent over last year.

Whether old or new, driving a car has become a luxury for many following the rise in the cost of petrol and tolls. Since the start of the year, this has led to fewer cars on Istanbul’s notoriously congested streets and roads.

“People can no longer use their cars,” reports Murat Ongun, spokesman for the Istanbul Metropolitan Municipality.

Inflation is changing the shopping habits of the middle class. Fewer people can now afford to dine at a restaurant or quench their thirst at a drinking establishment.

What is more, on 3 January, the government increased the special tax on tobacco products and alcoholic beverages and tobacco by 47 per cent, triggering price hikes of up to 33 per cent.

Taxes make up 80 per cent of the price of a pack of cigarettes, 75 per cent of a bottle of raki (anise-flavoured spirit), and almost 67 per cent for half a litre of beer.

Whilst higher alcohol taxes have triggered further grumbling, they are seen as a deterrent to the consumption of alcoholic beverages, as well as a nod to the domestic Islamists and religious radicals.

One consequence is that restaurants and stores selling tobacco products are struggling to stay afloat.

Last but not least, the risk of hyper-inflation has significantly reduced demand for loans by the middle class, especially for homes and cars, the most popular items.

Even in the retail sector, many businesses have seen sales plummet sharply since the start of the year, including clothing stores, despite this being the sales season.

The strong contraction in demand could lead to extended economic stagnation in the second quarter of 2022, with further negative repercussions on the labour market.

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