By Marschant Probart – Certified Financial Planner
Updated 3 Oct 2025
Inflation in South Africa: Why It Matters More Than You Think
Inflation – it almost feels like a bad word, doesn’t it? The idea of prices going up when everything already feels unaffordable makes most people uneasy. But here’s the truth: understanding inflation is one of the most important steps toward protecting and growing your wealth.
Whether you’re budgeting for groceries or planning your retirement, inflation plays a silent but powerful role in eroding your purchasing power. This guide breaks down what inflation is, how it works in South Africa, and what you can do to stay ahead of it.
1. What Is Inflation? | CPI vs PPI Explained
Inflation is the general increase in prices over time, which decreases the value of money. If inflation is 5% annually, something that cost R100 today will cost around R105 in a year.
Important: When inflation decreases from 5% to 3%, it doesn’t mean prices are falling—it just means they’re increasing more slowly.
Two Key Measures of Inflation:
- CPI (Consumer Price Index): Tracks price changes in a typical basket of goods/services bought by households. It’s the most commonly cited measure of inflation.
- PPI (Producer Price Index): Measures changes in selling prices received by producers at the wholesale level. It’s a leading indicator of future consumer price movements.
Types of CPI:
1. Headline CPI
- Includes all categories: food, housing, transport, health, education, fuel, etc.
- Reflects the true cost of living for consumers.
2. Core CPI
- Excludes volatile items like food and energy.
- Focuses on underlying inflation trends.
- Often used by central banks like the South African Reserve Bank (SARB) to guide interest rate decisions.
2. Inflation Terms You Should Know: Reflation, Disinflation, and More
Inflation isn’t one-size-fits-all. Here are some useful terms to understand:
- Reflation: Policy efforts to raise inflation after a slump.
- Disinflation: Inflation rate is slowing, but still positive (e.g., from 5% to 3%).
- Deflation: Prices are falling across the board. Sounds good? It’s not—deflation can stall economic growth.
- Stagflation: The worst-case scenario—high inflation, slow growth, and high unemployment.
3. SARB’s Inflation Target: What Is the Ideal Range?
The South African Reserve Bank (SARB) aims to keep inflation between 3% and 6%, with an ideal target of 4.5%.
As of August 2025, South Africa’s headline inflation stands at 3.3% year-on-year.
Why a Range?
It gives the SARB flexibility to respond to external shocks while managing inflation expectations. The SARB adjusts the repo rate (interest rate) to influence borrowing, spending, and investment patterns across the country.
Potential Changes Ahead?
There are talks of tightening the inflation target to 2–4%. If implemented, this could mean:
- Higher interest rates for longer
- More pressure on borrowers
- Better returns for savers
But it’s a politically sensitive and technically complex change, with no formal decision yet.
4. What’s in the South African CPI Basket?
CPI is an average of many spending categories, each with different weights. According to Statistics South Africa (Jan 2025), major CPI components include:
- Food and non-alcoholic beverages
- Housing and utilities
- Transport
- Health and education
- Clothing and footwear
Each category responds differently to market dynamics, making CPI a helpful—though imperfect—snapshot of inflation.
5. Why “Official” Inflation ≠ Your Real Inflation
While headline CPI reflects an average, your personal experience of inflation can be very different.
Why?
- Your spending habits are unique
- Geographic location (urban vs rural)
- You may buy more of what’s inflating fastest (e.g. food or transport)
- Quality and product size may shrink while prices stay the same (see: shrinkflation and skimpflation)
Real-Life Example:
From a 2024 TimesLIVE article:
In 1990, 1L of orange juice cost R1.59. In 2024, it costs R34.99 – a 2,100% increase!
Plus, many products today are smaller or made with cheaper ingredients. So, you may be paying more for less.
6. Why You Need Investments That Beat Inflation
Let’s be blunt: if inflation averages 5% a year, your cash loses 5% of its value annually.
Even if your bank gives you 6–7% interest, after tax and inflation, your real return might be just 1–2%—or negative once you factor in currency depreciation.
What Can You Do?
To build real wealth, your investments must outperform inflation consistently. Consider:
- Equities (Stocks)
- Real Estate
- Inflation-Linked Bonds
- Diversified portfolios managed by professionals
These can return 8–15% annually, depending on market cycles and risk levels.
Final Thoughts: Don’t Let Inflation Eat Your Wealth
Inflation may be silent—but it’s relentless. Over time, it erodes your purchasing power, reduces the value of your savings, and challenges your financial goals.
If your investments aren’t growing faster than inflation, your wealth is shrinking in real terms.
Get Ahead with Affluence Capital
At Affluence Capital, our mission is simple:
We help your money grow faster than inflation.
Whether you’re planning for retirement, saving for your kids’ education, or just want to grow your wealth in real terms—we can help.
👉 [Book a free consultation today] to learn how our inflation-beating investment strategies are tailored for South Africans like you.
