Cost of Living Ratio - Erden Kınayiğit

For workers and retirees, life is shaped by the balance between rising prices and income growth. Inflation, defined as the price change in a set basket of goods and services, directly influences wage adjustments. However, the article argues that wage increases based solely on inflation do not improve living standards. It introduces the concept of a 'Cost of Living Ratio' (CLR), which incorporates a 'welfare share' in addition to inflation. This CLR aims to provide a more accurate reflection of the actual cost of living, particularly in less developed countries where economic conditions are often tied to political expediency rather than standardized measures.

The author proposes a method for calculating CLR by considering the proportion of average income spent on essential expenses like food and rent. For instance, using a numerical example with a 100-unit income, where 40% goes to food with 30% food inflation and 30% to rent with 25% rent inflation, the CLR reaches 24%. This figure, representing the combined impact on living costs, significantly exceeds the general inflation rate of 15% in the example. The article suggests that including other major expenses like transportation and education would further enhance the CLR's realism.

Furthermore, the article posits that adding the inflation-adjusted economic growth rate to the CLR could represent a socio-economic decision, leading to a more comprehensive measure of prosperity. By shifting the focus from inflation to the 'Cost of Living Ratio,' the author contends that societal welfare can be advanced more effectively. This human-centered approach seeks to establish a more contemporary and equitable standard for assessing and improving living conditions, moving beyond the limitations of traditional inflation metrics.