Abridged English translation of a column by Prof. Dr. Mehmet Karaçuka, originally published in Seferihisar Yeni Haber on 16 December 2024 as “Türkiye’de hizmet enflasyonu ve nedenleri.” Figures and judgments refer to the original publication period.
Turkey has experienced particularly strong price increases in everyday services, including haircuts, repairs, dry cleaning and healthcare. In the November 2024 figures discussed in the original article, annual headline inflation stood at 47.1%, compared with 67.9% for services and 39.0% for industrial goods.
An essential difference is that many services are non-tradable. A haircut in İzmir cannot normally compete with a haircut in Istanbul, let alone one supplied abroad. Competition is confined to relatively small geographic markets, sometimes individual neighborhoods, whereas clothing and electronics face national and international competitors.
Another factor is productivity. A barber may require approximately the same amount of time to cut hair today as a century ago. Labor-intensive services consequently have fewer opportunities for rapid productivity gains. Rents, wages, electricity and other relatively fixed expenses can also be passed into prices, especially when fewer customers must cover a business’s costs.
Service quality is often difficult to evaluate in advance. Consumers may even regard high prices as evidence of superior quality, reinforcing some providers’ pricing power.
Tackling services inflation therefore requires attention not only to macroeconomic policy but also to local competition, productivity, consumer information and perceptions of quality.
Original Turkish article: Türkiye’de hizmet enflasyonu ve nedenleri — Seferihisar Yeni Haber, 16 December 2024.
