FX, Wages and CPI: the Turkish Case
At the suggestion of a turkish business owner, I take a look at the CPI (Consumer price index, which measures inflation), Minimum wage, and FX (foreign exchange from lira to USD) evolution to gauge the relationship between the variables. I only obtained data for fx since 2006, whereas minimum wage and cpi data are available for longer. Note that the Lira was rebased by a factor 1 million on Jan 1st 2005.
Here are the 3 values rebased as of Jan 2006:
Using log scale helps identifyiing the trends:
- From 20026 to 2016, cpi was tracking minimum wage, with fx underperforming.
- From 2016 to 2023, minimum wage track fx and cpi numbers seem to be underestimated (there was political pressure on the national statistics institute to publish lower cpi, supported by anecdotes cpi basket item price manipulations and the firing of the director of statistics followin a high CPI publication).
- Since 2023, cpi increases faster than fx, and minimum wage still grows, meaning that Turkiye is catching up in terms of buying power.
We see using year on year numbers the fx moves being much more volatile than wage and cpi:
Another way to visualize what happened is to show the minimum wage in real Lira (inflation adjusted to 2006 base) and in EUR:
- from 2006 to 2016, we see that the minimum wage was stable around 350 to 400 eur during the decade.
- In 2016, minimum wage was increased suddenly around the coup attempt and US pressure against Turkish state owned banks and businesses
- From 2020 to 2022, there was another bout of inflation and devaluation with covid.
- The instability brought minimum wage as low as 280eur at end of 2021. After that, the minimum wage is reevaluated twice a year until the presidential election, with levels that far exceed inflation and devaluation.
Update In January 2025: Turkish minimum wage went up from 400 eur in 2016 to 724 eur, a 81% increase in 8 years which corresponds to 7.7% annualised, but the appreciation from the lowest point of 280 eur in end of 2021 to Jan 2025 is much faster, x3 in 3 year, which is 44% annualized from Jan of 2022 to 2025.
Below are the values of the 3 time series without rebasing:
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