Household Level Inflation Rates and Inflation Inequality in Turkey

Abstract

This paper aims to explore the distribution of inflation rates at the householdlevel and estimate their determinants using the Household Budget Surveys. It derivesthe household level inflation rates using the democratic price index and analyzesinflation inequality and its persistency. The main contributions of the paper are asfollows: (i) to determine inflation inequality by examining the distribution of householdspecific inflation rates calculated by the democratic price index, (ii) to examine newdimensions of inflation inequality in Turkey by income groups and householdcharacteristics, (iii) to estimate the micro-level determinants of household inflationrates in Turkey. Results suggest that inflation rates are lower for the rich than for thepoor, and the distribution of inflation has worsened the income inequality in Turkey. Thisanalysis provides rich information for monetary policymakers. Households havedifferent responses to price changes or monetary policy tools because of their uniquecharacteristics and economic conditions. Thus, we need to know how inflation ratesdiffer at the household level in order to understand how monetary policy and inflationaffect the well-being of households.