What is inflation & how does it affect your bottom line?

Inflation is one of those buzzwords that often make its way into conversations about money and budgeting. Do you know what inflation is and how it affects your bottom line? There is no need to feel bad if you don’t – according to recent report less than 25% of all South Africans knew the exact definition and impact of this financial phenomenon. Today we give you a concise rundown on the most important things you need to know about inflation in South Africa and why you should keep an eye on it when you calculate your household budget.

What is inflation?

In essence, inflation is the increase in the cost of goods and services over time, which is measured as an annual increase. In South Africa, the Stats SA Consumer Price Index (CPI) measures the price changes in consumer goods and services like clothing and food. The price changes are measured from the point of view of the consumer and published every quarter.

How does inflation affect your bottom line?

As inflation rises, the money you have effectively buys you a smaller portion of a given product or service. In short - every time inflation increases; your money is worth less because your purchase power decreases. E.g. if inflation is at 3%, the jug of milk that costs you R12 today will be marked at R12.36 this time next year. In an ideal world our salaries will increase in line with inflation so we can continue to cover our living costs. However, this is often not the case.

This is why it is important to keep inflation in mind when you revaluate your household budget each year. Keep an eye on the CPI to determine by how much the prices of your day-to-day groceries and consumables are likely to rise over the course of the year and build this into your budget by adding a margin for error. This way, you won’t suddenly have a whole lot of month left at the end of your grocery money when prices inevitably rise again.

There you have it – a concise look at inflation and how it affects your bottom line in the long run. Keep an eye on the blog in coming weeks and months as we share more helpful advice on making wise decisions where your finances are concerned. In the meantime, feel free to reach out to a Libertine Consultants representative to learn more about our debt services and credit services.