If you’re confused by what inflation, the Consumer Price Index (CPI) and the Production Price Index (PPI) are, you’re not alone — a lot of South Africans find these terms bewildering.
Tendani Mantshimuli, consumer economist at Liberty Retail South Africa, unpacks the terminology for Smart Money.
Inflation is one of the most important economic forces consistently weighing on the value of a nation’s currency. Essentially, it is an economic concept that tells us the general level of prices in the economy and how prices are changing.
“When inflation is high, that means prices are going up very quickly; when inflation is low, that means that prices are staying steady and only rising slowly over time,” says Mantshimuli.
“This is an important measurement because when prices increase your income will allow you to buy fewer goods and services than before. This will also affect your stokvel, depending on where you are investing it.”
The government, through Statistics South Africa, uses what is known as a Consumer Price Index (CPI) to measure inflation. CPI is the price of a basket of goods and services that a typical family would buy each month, for example, food, rent, transport, electricity, clothing, school fees and entertainment — the things that a typical family would need every month.
“Each month, Statistics SA adds up the price of everything in this basket of goods and services and compares it to the price of the same basket of goods in the previous month or year to find out how much the prices have changed in that period. So for example, if the basket was found to cost R1 000 in September 2010, but is now costing R1 080, then we say inflation is 8%, since the CPI has increased by 8%,” says Mantshimuli.
PPI
The Production Price Index (PPI) is not something that consumers have to have to know about but is something we all hear about every now and again. It basically indicates the changes in production prices of locally produced commodities (which are locally sold or exported, such as fruit, vegetables, clothes, fish and so on) and imported commodities (all the goods we get from overseas that we don’t manufacture).
The PPI measures changes in prices in the early stages of production, before those price changes have had a chance to filter through to households. Because of this, the PPI is a useful tool to predict changes in the prices of consumer goods and services (which affect CPI) in advance.
The CPI is published on the second last Wednesday of each month, while PPI is released on the last Thursday of each month and the South African Reserve Bank Monetary Policy Committee meetings take place every second month — January, March, May, July, September and November.
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