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Blog : 20 December 2016 (Digging into some of our inflation series as published by Statistics South Africa)
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In today's blog we take a look at some of the inflation series as published by Statistics South Africa (Stats SA). We all know the main number they publish wich is the CPI for All Items in All Urban areas., it is also known as the headline inflation figure. The headline inflation figure is used by the Reserve Bank (SARB) as the official inflation rate for their inflation targeting monetary policy mandate. But what it is and what other inflation rates does Stats SA publish? We take a look below
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Pensioners inflation vs Headline Inflation
The lien graph above shows pensioners inflation compared to the official inflation rate as published by Statistics South Africa. Now for the most part the pensioners inflation (the lime green line) was well above the year on year percentage changes of the official inflation rate published. And then almost like magic, the two lines started converging and now the growth rates of pensioners is neer identical to that of headline inflation rate published by Stats SA. Wonder how one explains this. Why would there be large scale differences in the past time series and then magically pensioners inflation merges with the headline inflation figure? Did they change the way they collect prices for the basket for pensioners? And do they collect prices for pensioners using pensioners' discounts for haircuts and certain food items for example? Or do they use the regular retail prices and just have a set of weights that is specific to pensioners? And should the CPI for pensioners not take specials for pensioners into account?
Inflation for expenditure groups
The graphic below shows the inflation rate of the various income groups in South Africa. From the very poor households to the very rich households. And the findings are worrying.
To provide more insight on the groups as classified in the graphs above. Stats SA's CPI determines the groupings above based on the following values (spending per household in a year).
Very Low: R0 up to R21 399
Low: R 21 400 up to R 35 750
Middle: R 35 751 up to R 61 624
High: R 61 625 up to R 142 083
Very High: R 142 084 >
Very Low: R0 up to R21 399
Low: R 21 400 up to R 35 750
Middle: R 35 751 up to R 61 624
High: R 61 625 up to R 142 083
Very High: R 142 084 >
As can be seen from the graphic above the poorest of the poor experienced a higher average level of inflation over the period than the rich. And this just further entranches the inequality in South Africa, as this means the value of the poor's money is decreasing at a faster rate than the value of the rich. The same basket of items the average poor household bought for say R100 in January 2008 now costs them R176.39, while the a basket of items that the average rich household bought that cost them say R100 in January 2008 now costs R162.56. Essentially the average rate of inflation for the poor from January 2008 to November 2016 equaled 6.3% a year, while the average inflation rate of the rich averaged 5.4% a year for the same period. Basically the poor's purchasing power of money is declining at 0.9% a year faster than that of the rich. Making it ever harder for the poor to escape the poverty cycle they are in. If government wants to address inequality, perhaps price setting or encouraging retailers to keep price increases on goods purchased by the poor to a minimum.