Decline in gold prices slows consumption: The impact of a $155 billion wealth loss on households

The loss in value of gold, one of the most common savings instruments for households in Turkey, has created a notable impact on domestic demand and the inflation outlook. According to a recent analysis by QNB Bank economists, the decline in gold prices has weakened citizens' propensity to spend, reducing demand pressure in the market.

The analysis stated that after peaking at over 5,400 dollars in January, the price of an ounce of gold fell to the 4,100 dollar level. It was noted that this decline represents a loss of approximately 155 billion dollars in the total value of domestic gold assets since February.

Although it was reported that the total gold stock remained around 560 billion dollars in June, it was noted that the rate of value increase in gold has remained significantly behind that of previous years. According to economists, this picture is influencing household behavior through the "wealth effect."

THE WEALTH EFFECT HAS REVERSED

During the period last year when gold prices were rising, citizens who saw their savings gain value felt wealthier, which increased their tendency to consume. This kept domestic demand lively and created upward pressure on price increases.

This year, however, it is assessed that the same mechanism is working in the opposite direction due to the sharp drop in prices. Seeing that their gold savings have lost value, households have turned toward postponing non-essential spending and acting more cautiously.

According to the QNB Bank analysis, this weakening in spending appetite has slowed demand for goods and services. The cooling of demand has also limited the capacity of sellers to raise prices, contributing to the easing of inflationary pressure.

The report emphasized that in addition to the Central Bank's tight monetary policy and regional uncertainties, the decline in gold prices has also reinforced the contraction in demand. For this reason, the slowdown in household consumption is considered one of the prominent factors in the downward trend of inflation.

News Source: 12punto