Inflation is the rate of change in the general level of prices for goods and services over time. Inflation affects your standard of living because it makes everything more expensive: rent, houses, cars etc.
How is Inflation in South Africa measured?
We measure inflation in South Africa using the Consumer Price Index or CPI, which is the average spending or living costs of a person. The CPI measures how much the prices of a basket of goods and services have risen.
The CPI is calculated by totalling the costs of a predetermined ‘basket of goods and services as used by an average South African. The total expenditure on these goods is then divided by their quantity to calculate their individual price.
The basket includes items such as food and beverages, housing, clothing and footwear, transport, communication, recreation and culture, education, restaurants and hotels.
Personal care products and services (for example) fall under the miscellaneous goods and services category.
How to calculate the inflation rate for a year
To determine the inflation rate for a particular year, you must look at how much money you spend on goods in that year. Then, you divide this amount by their quantity to calculate their individual price. Using inflation-adjusted dollar amounts from 1997 (the base year), these price changes are then used to calculate inflation.
For example, let’s say that in 1997 there was $100 worth of milk purchased and in 2016 there was $150 worth of milk purchased. The total expenditure on these goods is divided by their quantity to calculate their individual price: 100/20 = 5 dollars per unit; 150/15 = 10 dollars per unit. This means that the 2016 dollar has lost value since it took more money after inflation (10) than before (5) for consumers to buy enough milk to equal what they got before with less money!
Inflation is directly linked to your standard of living.
There are two main components of inflation – namely demand-pull and cost-push inflation.
Demand-pull inflation happens when there’s an increase in spending (demand) but not enough supply to meet this new demand (supply). For example, if people buy more things like cars or houses because a lot more people have jobs than before then this means there will be a higher demand for these goods which leads to higher prices for these items and other products related to them (e.g., petrol). Cost-push is where producers raise their costs because they need more money because of something like rising fuel prices or labour costs going up too quickly; this leads them to be unable to keep up with demand so they have no choice but to increase their prices even further until consumers stop buying their products altogether!
