# The scary story of inflation!

2015-10-21 07:27

There's a lot of debate about what the actual inflation figure is. Officially, it's somewhere between 4.5 - 6%. But the volume of purchases in my shopping trolley vs. its cost seems to tell another story...

However let's take 6% as the right figure. I invested R200 000 in RSA Retail Savings Bonds over a 3-year period at 7.75% return. (That's what it was then.)

Anyway, using my trusty calculator, I did some maths. R200 000 x 7.75%+ = R215 500. Times 7.75%+ again = R232201.25. And once more for the 3rd year = R250 196.84 to withdraw. Whoopeee!! A whole fifty-grand profit on my original investment!

But now comes the sobering part. I then did the calc of taking inflation over the 3 year period into account. R250 196.84 x 6% minus = R235 185.03.  Again, for the second year x 6% minus = R221073.93. And finally for the 3rd year when I get to draw it, the real-world figure works out at R207 809.50 in terms of the actual amount of the value it was when I deposited it  Wow! A whopping whole R7809 increase in ACTUAL VALUE ON MY R200 000 OVER 3 YEARS! Not the glorious R50 thousand 'profit' I thought I would be getting. Not so whooopeee then...

(And banks normally give you a far lower rate than 7.75%, or 8.25% as the 3-year RSA Bonds are now).

Scary stuff inflation, isn't it?

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