How the rising dollar affects your budget
I don’t want to begin by saying the U.S. dollar has “broken a record” because it has broken its own record many times. But let me at least say: “It has broken the record of increasing.”
The Turkish Lira slid to a fresh historic low of 4.66 from 4.55 in one day.
And lately, some people have been saying: “I am not buying anything in dollars or euros. Why does the lira losing value even matter?”
Some, in answer to that, say: “The input of everything we buy is from abroad, so we pay in dollars. What are you talking about?”
I, as a mediocre economist who finished an economics degree at Boğaziçi University in five years, will try to analyze the effect of the rising dollar on an average family.
Let’s say your monthly income is perfect, it is 3,500 liras ($720).
And let’s say you are living in the Kozyatağı neighborhood of Istanbul’s Kadıköy district on the Asian side but working in the Kağıthane district on the European side. You pay rent, own a car, and have two children. You never use imported products and only buy locally-made ones. You are happy and are hopeful of the future. What could have possibly changed in your happy life due to the rising value of another currency of a faraway country?
An average family spends 38 percent of their monthly income on food, 34 percent on rent, nine percent on clothing, five percent on cleaning, seven percent on heating and electricity, and the rest five to six percent on the remaining expenses. But if you own a car and also want to go on a holiday once in a while, you should then add such expenses as well.
So, for example, in 2017 an average family would have spent their 3,500-lira monthly income as follows: 1,140 liras on food, 1,020 liras on rent, 270 liras on heating and electricity, 150 liras on cleaning products, 100 liras on holiday, 400 liras on fuel and 180 liras on trivial stuff, closing the month off with nearly no saving at all.
Let’s recalculate these numbers, considering that between May 2017 and May 2018, the value of dollar against the lira increased 30 percent, from 3.57 to 4.65.
Some 30 percent of the food input costs are based on the dollar. And I am not talking about French cheese or avocado. This is the case for tomatoes and cheese produced in Turkey. So, your food costs will increase from 1,140 to 1,245 liras.
For rent, I base its increase on inflation. And with the dollar rising in value, the inflation spikes as well. With the inflation hitting 15-16 percent, your rent is no longer 1,020 this year, but 1,183 liras.
So you just buy Turkish-made clothing. But, even for locally-made products, some 13 percent of the costs of producing them are based on the dollar, so your monthly clothing expenses will rise from 270 to 282 liras. Your heating and electricity expenses will increase from 210 to 235 liras, in line with an increase reflected by the government onto the energy costs due to the increase in the dollar’s value.
For cleaning costs, assume that the companies forgot that Turkey mostly imports chemicals from abroad and just increased the prices by 15 percent based on inflation. Your cleaning expenses increased to 172 liras.
What about your holiday expenses? When the dollar spiked against the lira, Turkish tourism companies started to earn 30 percent more, even after keeping the prices the same. So, do you think they will offer you the same room as last year for the same price? Food, cleaning, and rent expenses have already increased.
When we reflect the same logic on other items, even if you had nothing to do with foreign brands or other countries, you would now be spending 3,950 liras instead of 3,500 liras monthly.
You should ask your bosses to raise your salary by 450 liras. Let’s see what they will say!