inflation

Inflation “CPI | PPI”

The Consumer Price Index (CPI) is a yardstick used to measure the rate at which prices increase for a basket of goods for the average South African consumer. Essentially, the rate at which our cost of living increases. The South African Reserve Bank’s mandate is to maintain price stability (or the CPI) within the 3% to 6% band.

Over the past two years CPI has been fairly stable at the upper part of the band and there have only been a couple of occasions when it went over the 6% mark (See below). Which is quite something in light of the price increases of water, electricity and petrol over the past years. The question of course, is why has CPI not been higher?

CPI Long Time Trend
Data Source: Stats SA

Apart from the efforts of the Reserve Bank, one other factor that has helped stablilise the CPI is the manufacturing sector. They have been absorbing the cost of the increases mentioned above. So let’s take a look at the other side of the inflation coin, the Producer Price Index (PPI). This is essentially the rate at which the cost of doing business increases, or prices from the seller’s perspective.

Since August 2013 PPI has pulled away from the CPI (see below), a clear indication that manufacturers are not passing on all their cost increases onto consumers. But, as indicated by Neren Rau, the CEO of South African Chamber of Commerce and Industry, this cannot go on forever. He says that we should expect to see the prices of our goods and services increase again in the near future as manufacturers start passing on their increasing costs. This of course is not good news for consumers, but let’s be grateful for the business sector holding out for as long as they did.

PPI vs CPI
Data Source: Stats SA

On a side note, as mentioned in my previous post, averages tend to hide the truth. Use this tool provided by Stats SA to calculate your personal inflation rate. Mine was 6.0%, slightly ahead of the national figure of 5.8%. Additionally, the Labour Research Service puts out a monthly publication on the inflation rate that breaks out inflation into its various parts and splits it out by household expenditure and province. Interestingly, the trend for this month being the higher your household expenditure, the higher your rate of inflation. Check it out here.