Austerity and price hikes are wiping out Turkey's middle class

Incredible price increases are forcing Turkey’s middle class to cut spending in a myriad of sectors, from shopping and transportation to food and travel.

Consumer demand has shrunk in recent weeks and living standards have changed dramatically, with rising prices forcing consumer standards to revise.

The drop in restaurant turnover, for example, has worsened after the latest price increases, as fewer people choose to eat out or meet for a drink.

The government increased the excise tax on alcohol and tobacco by 47% in January.

The taxes now represent 4/5 of the price of a pack of cigarettes worth 25 pounds (1.60 euros), 3/4 of the price of a bottle of 700 milliliters of raki, the national drink of the country, worth 255 pounds (16 euros) and 2/3 of the price of half a liter of beer sold for about 35 pounds (2.25 euros) in wineries.

Car prices also rose by about 100% last year and are expected to rise further, forcing many to abandon plans to buy new vehicles. Even the use of existing cars is becoming a luxury after the recent increases in fuel prices and tolls. The typical traffic jam in Istanbul has abruptly eased since the beginning of the year.

The dramatic devaluation of the Turkish lira, which lost almost 44% of its value against the dollar last year, has also curbed the middle class’s appetite for travel abroad.

Amid the risk of hyperinflation, demand for middle-class loans also declined.

Mortgages and car loans – the most popular in the middle class – have fallen sharply.

In the retail sector, too, many companies have seen their sales plummet since the beginning of the year, including clothing stores despite the arrival of the discount season.

A sharp decline in consumer demand by the middle class could lead to a sharp economic stagnation, especially in the second quarter of the year, which means that a new wave of job losses can be recorded.

According to Mustafa Sonmez at Al-Monitor, the ability of relatively higher incomes to secure inflation-matching wage increases depends heavily on their organizational strength. Public sector employees receive compensation for inflation, but in the private sector, trade union workers with the right to collective bargaining represent only a small minority, not exceeding 3% of total employees. The rest are likely to suffer real income losses. And those from the self-employed middle classes, whether farmers in rural areas or entrepreneurs in urban centers, are struggling to stay afloat. They are squeezed between rising costs and high lending rates.

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