Sustainable purchasing power in an inflationary economy: Rent prices and big mac index in Turkiye

Abstract

The inflationary attack, which started globally in the last half of 2021 towards the end of the Covid-19 pandemic, emerged a much more sudden and sharp rise in Turkey with the effect of interest rate policies and the exchange rate. With the decision of the TCMB to raise the policy rate to 50% in March 2024, contractionary monetary and fiscal policies were adopted and the disinflationary process officially started. As of today, there is an optimistic regression towards disinflation, but households’ purchasing power continues to decline due to insufficiently low inflation. In addition to inflationary inertia, economic policymakers claim that rent increases, which account for 14.2 per cent of the inflation basket, are hampering the disinflation process. The termination of the legal cap on rent increases (25 per cent), which had been in place for nearly two years, paved the way for CPI-based price increases once again. However, prices suppressed due to rent increase restrictions are expected to put pressure on inflation until they approach the market reality. In this study, in order to address the inflationary pressure of rental prices and their sustainability against purchasing power, 4 different series are considered and Fourier-based non-linear time series analysis is performed. In the analysis, big mac index data, rent data per square metre advertised on sahibinden. com sales platform, tufe-rent index and tufe data are considered. In order to test the sustainability of purchasing power, the series obtained by dividing the minimum wage by the aforementioned data were also analysed. For the period 2020:12-2024:12, the Omay (2015) fractional flexible Fourier test is used to test whether series contain unit roots, while the Banerjee et al. (2017) Fourier ADL test is used for cointegration. All series are non-stationary at level. In the long run, the big mac index moves together with the data on rental prices per m2 and the tufe rent index. In addition, in the purchasing power perspective of the minimum wage, none of the series are stationary and there is no convergence in the wage-price spiral. It is concluded that rent prices exert inflationary pressure due to market intervention and do not converge to the announced tufe and rent index values, but converge to sahibinden.com m2 rent prices and big mac index. In addition, there is a mismatch between minimum wage changes and market price changes, which leads to significant erosion in purchasing power.