Inflation drops – here’s what it means for you

2014-08-20 11:36

Inflation dropped to 6.3% in July from 6.6% in June.

Inflation, which is measured officially as the consumer price index by Statistics South Africa, measures price increases across a basket of products, from electricity to transport to education and food.

Inflation is slowly coming down, with expectations that this will continue for the rest of the year. It is still above the benchmark set by the Reserve Bank of 3% to 6%.

There are some trends we can see in elements of the inflation basket.

Investec economist Annabel Bishop says the increase in the price of agricultural products has slowed. South Africa has produced a bumper maize harvest, she says, and while this is already evident in the price of cereal, this could filter – over time – into lower increases in dairy, meat and egg prices.

So while agricultural products increased only by 4.4%, food inflation remains much higher than the total inflation figure.

Food price inflation was 9% in July, down slightly from 9.2% the previous month.

Electricity and water prices have also increased at a rate higher than inflation.

For most of us, official inflation generally seems lower than what we have to spend. This is largely because our “basket” does not correlate with that of Stats SA, particularly on health and education costs. Recently, one organisation that measures food baskets for lower income earners showed its inflation at 10% to 11%.

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