Inflation, and the importance of investing for growth

Paul Hutchinson

Many of us intuitively think that our personal inflation rate is higher than the Stats SA calculated inflation rate. But is it? Paul Hutchinson, Sales Manager at Ninety One, explores the implications.

A colleague of mine came across a clipping from The Citizen newspaper of 1986, which allowed him to investigate price changes in this basket of household goods. While it does not allow for a robust study of inflation (as is the case for the much-quoted Big Mac Index) and is not a representative basket of goods, it does provide some interesting insights and important financial planning lessons.

Figure 1: Product price list from 1986

Source: Citizen newspaper, 1986

Many of these items are Tiger Brands’ products, which have not been substantially value-engineered since then. For example, Crosse & Blackwell Mayonnaise still uses the same recipe, and it still comes in a glass bottle. This makes them good products to analyse over time.

To begin with, we charted South Africa’s official inflation rate, indexed to 100 in 1986 (be afraid, very afraid). The following chart shows just how insidious and corrosive inflation is over time. In short, if you were earning R10 000 a year in 1986, just to keep up with this official inflation rate, you would need to be earning R150 000 today!

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