Huge inflation gap between rich and poor

By Drum Digital
18 August 2015

After Lesotho, South Africa is the most economically unequal country in the world

Over the last year, the most expensive products have increased by 17%, while the cheapest have decreased by 3%, an analyst says, adding that yearly CPI inflation for July has increased by 5%.

The Consumer Price Index (CPI) stood at 116.1 at the end of July, implying year-on-year (y/y) inflation of 5% and month-on-month inflation of 1%, according to The Inflation Factory (TIF) on Tuesday.

Statistics SA will release its official CPI results on Wednesday.

If TIF is on target, it would be the fifth monthly increase in y/y inflation following six months of decreases.

“Simple projections of CPI show the y/y rate continuing to increase through to January 2016, with a strong chance of breaching the 6% ceiling by that time,” TIF said in its monthly newsletter.

Rich vs poor inflation

(CIA world fact book), according to TIF.

“The massive difference in wealth between the ‘rich’ and ‘poor’ has a major effect on the different products that these groups buy and their respective inflation rates, but these differences are completely invisible if you only look at one lone CPI number.

“By dividing the hundreds of thousands of products that TIF tracks into four groups (cheapest, cheap, expensive, most expensive) we have produced inflation indices that represent these different groups of products.”

It said the different rates are affected by two things: the variation in the amount that they spend on different products (the poor spend proportionately more on food and fuel), as well as the different products that they buy within each category (an expensive vs cheap car).

“For anyone who has complained that they believe that their inflation rate is far higher than the published CPI rate, it's probably because, according to our data, you are richer than average,” according to TIF.

TIF’s data shows significantly higher inflation rates over the last year for expensive products (the equivalent of a 17% CPI for those people who shop in the top 25% of products available). For the cheapest of products (those in the bottom 25% of products by price) there has actually been 2.4% deflation.

“This difference in spending power can massively affect the relative rates of inflation in different populations and represent very different effects,” TIF said.

“If the CPI is being driven by very large increases in expensive products, as opposed to similar changes across all groups, this should have a very different economic interpretation and interest rate policy."

Source: Fin24

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