Why your inflation rate is higher than the official CPI

Whenever the inflation figures are released, consumers must wonder what basket of goods Statistics SA could possibly be using because one thing is for sure, our cost of living is going up far quicker than the official 5.3%.

As an example, just this week we received notice of our rental increase and school fees, both of them went up by 8%. That figure is 50% more than the official consumer price index (CPI) figure.

I have noticed that our restaurant bill for our weekly date night has gone up a massive 50% over the last year—a direct result of the high electricity costs that restaurants have to pay. And of course our household electricity bill has gone up by over 20%.
So what exactly in my so-called basket is only costing me 5.3% more?

Well apparently if I bought a new car, new phone, TV and a couple of electronic goods every month, my inflation rate would fall because then my spending pattern would match that of the Statistics SA basket.

A research note from Stanlib economist Kevin Lings explains it very well:

SA consumer activity is likely to facing increasing strain due to a range of cost-push factors that are systematically eroding the household sectors spending power. These include higher energy costs, transport costs, food costs, education fees, medical service costs and water costs. The problem is that most consumers cannot avoid these increases, as these expenses relate to necessities or essential goods.

So while consumer inflation remains inside the target range, it does so because a number of non-essential costs as very well contained. A good example is the inflation rate for telecommunication equipment, which is currently -25.4 year-on-year.

While this helps to keep the overall measure of inflation under control, it is not a benefit that most households experience on a daily basis because they don’t purchase telecommunication equipment that regularly.

Another example is the cost of a new vehicle, which has an overall inflation rate of -0.5%year-on-year. This carries three times the weight of petrol in the CPI basket, yet petrol inflation is 23.5% year-on-year. Most household don’t buy a new car every month, but certainly experience the high petrol inflation on a monthly basis. Experienced inflation is higher than measured inflation.

So there you have it, it is official, the CPI rate bears very little relevance to what you experience in your monthly budget every month, just in case you hadn’t noticed.

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