Accurate calculation of macroeconomic indicators is an essential element for appropriate interpretation of economic circumstances and for the assessment and diagnosis of economic challenges. Since most macroeconomic data depend on other data at the stage of calculation, the calculation accuracy of basic data is essential. The consumer price index (CPI) is one such indicator. The GDP deflator, or CPI, is used to calculate nominal value macroeconomic data; therefore, if the CPI value is inaccurate, all data calculated incorporating CPI and many indicators, even income distribution, will also be inaccurate. Policymakers determine economic goals, develop and implement economic instruments according to these macroeconomic data; therefore, the deviation or miscalculation of these data will hinder policymakers’ objectives.

CPI calculations, which contain important numerical operations, are a highly controversial issue. The first part of the study includes the criticisms developed regarding CPI calculation. As a contribution to these criticisms, this study critiques the determination and calculation of the consumer goods basket, which is the most significant variable in CPI calculation. According to this study, consumer goods baskets vary according to factors such as individuals’ income level, total wealth, culture and beliefs, profession, psychological and sociological conditions, and demographic characteristics. As the population of the group represented by the consumer goods basket increases, individuals’ representative power decreases; therefore, this study advocates the determination of separate consumer goods baskets for various income groups, calculating separate CPIs.

The effects of inflation—referred to as the most brutal tax—on income distribution is a highly debated issue in the literature. Previous studies focus on the causality relationship between inflation and income distribution. In contrast, this study contributes to the literature by including inflation in the determination of income distribution. The indicators used to determine income distribution are calculated using income level; however, the purchasing power of individuals whose income level remains constant will decrease due to inflation. Therefore, while income levels remain constant, the purchasing power of groups that encounter different inflation rates will decrease at different rates. In other words, individuals whose incomes remain constant and who encounter different inflation rates will become poorer at different rates. For this reason, income distribution methods that only accept income level as an explanatory variable in income distribution and poverty determination will be inaccurate. This study proposes an income distribution calculation method that includes the CPIs of income groups and the groups’ income levels. According to this method, the change in the purchasing power of various groups is also included in the income distribution calculation. 

The findings indicate an inverse relationship between income level and CPI in the Turkish economy. As individuals’ income level increases, the inflation rate that they encounter decreases. Low-income individuals endure higher inflation rates in the long run than high-income individuals; therefore, to maintain equality of income distribution, low-income individuals need to earn higher incomes relative to high-income individuals. In the opposite case, income distribution will be distorted even if income levels remain constant.

Constructive criticisms are presented regarding CPI and Gini coefficient calculations published by Turkish Statistical Institute (TURKSTAT). In addition, the proposal to create the CPI according to the income groups proposed in this study is calculated using TURKSTAT data. The calculated data are shared in the Appendix of the study for the use of researchers. This study suggests that consumer goods basket and CPI should be calculated specifically for restricted groups. For example, it can easily be asserted that consumer goods baskets will differ according to gender; therefore, it could be advantageous to calculate separate CPI and inflation rates based on gender as well as income groups. Households’ inflation rates could be calculated according to marital status and number of children. Calculation of CPIs specific to restricted groups in the determination and implementation of social policies will serve as a good reference for policymakers to identify groups whose purchasing power has decreased in the face of inflation so that measures to support the living conditions of these groups can be expediently developed and implemented. This study proposes approaches that will make an important contribution to the accuracy, relevance, and effectiveness of social policies.