Inflation’s different effects on different income groups – The danger for South Africa

a5_bEach month Statistics SA releases the inflation figure (CPI). Currently it is 5.9% which is a considerable improvement on February’s 7%.

What is interesting is the CPI figure is a composite of five quintiles of income groups – from the poor to the affluent.

 What do the quintiles show?

They show that for the wealthy the CPI is 5.8% but for the poor the figure is 8%. Effectively the poorer sections of the community are far more exposed to inflation. The main culprit is food prices which are increasing by 11.3%. This has a greater relative impact on the poor than the more wealthy.

Perhaps this helps to explain the rising tide of service delivery protests and the general discontent the country is facing.

 Inequality is increasing, and that’s dangerous

We know that South Africa is one of the most unequal societies in the world and in the medium to long term this is unsustainable. Intuitively, the inflation figures show that inequality is not decreasing but continues to rise.

Whilst we speculate about the various political machinations and student protests that daily hog the headlines, let’s not forget that failing to address inequality will come back to haunt us all.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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