Household inflation higher than CPI, says Ninety One

Calculations done by SA’s biggest asset manager show there is merit to the view that personal inflation outstrips the official consumer price index (CPI) data from Stats SA, leaving consumers much poorer.

The personal rate of inflation represents how your cost of living is rising, irrespective of the national average figure.

The money manager used data lifted from The Citizen newspaper in 1986, advertising several household goods and comparing prices from 1986 with the current prices of the items. Some of the goods surveyed include Surf, All Gold tomato sauce, Sunlight dishwashing liquid and Twinsaver.

Ninety One then calculated the annual compound change from 1986 to the present.

“In short, the average annual increase of 9.1% of this household goods basket is above the official annual inflation rate of 7.5% over this period.

“So our intuition that our personal inflation rate is higher than the official Stats SA inflation rate would suggest it does not appear to be so far off the mark,” said Paul Hutchinson, sales manager at Ninety One.

“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.”

CORROSIVE

Ninety One’s data also shows how insidious and corrosive inflation is — finding that if one were earning R10,000 a year in 1986, one would need to earn R150,000 today, just to keep up with the official inflation rate.

This figure goes up even further when considering the personal rate of inflation, putting the figure one would need to earn based on 1986 figures at R260,000.

“The analysis reinforces the key insight that hiding in cash or cash plus — enhanced cash — income-yielding investment solutions is not a sustainable long-term investment strategy.

“This is a critical observation, given that investors underestimate for how long they will be invested,” Hutchinson said.

“Simply, if you consider someone entering the workforce today, it is reasonable to assume that they have a 70- to 75-year investment time horizon (40+ years’ of investing for retirement and then 30 years’ of living off their accumulated

investments in retirement).”

Inflation refers to changes over time in the overall level of prices of goods and services throughout the economy. Stats SA measures inflation by comparing the current prices of a set of goods and services with previous prices.

Many consumers feel the official inflation rate does not reflect their true cost of living. Disposable incomes have come under significant pressure over the past three years due to elevated inflation and interest rates.

Financial services group Absa in its latest annual report said the strain on SA consumers has been broad-based as the rapid rise in interest rates increased household debt servicing costs by more than 30% since December 2021.

This has reduced disposable income levels that were already constrained by persistently high inflation.

The Reserve Bank’s price stability mandate is aligned to an inflation target band of 3%-6% for consumer inflation. The Bank was among the first central banks to hike rates in 2021, and it has consistently emphasised that its primary job is to protect the buying power of the rand by arresting consumer inflation.