What is Inflation?
- Inflation is the way in which goods and services become more expensive, over a period of time.
Inflation is usually expressed as a yearly rate.
- The rate of inflation is the percentage of money you’ll need more every year, to buy the same things you were able to buy the previous year. It’s the percentage by which the value of money decreases per year.
- Inflation rate
Measures of Inflation
- The consumer price index, or CPI, is the cost of a ‘shopping basket’ of goods and services of a typical South African household.
The CPI inflation rate is calculated by comparing the CPI for the current month, with the CPI of the corresponding month of the previous year. The percentage by which the CPI basket of services and goods increased, is the CPI inflation rate.
CPI is the official measure of inflation that is used in South Africa.
- The CPI minus mortgage costs, or CPIX, is a derivative of the CPI. The CPIX basket of goods and services contains all of those that occur in the CPI’s basket of goods, except for mortgage interest rates and only metropolitan and other urban areas are taken into consideration.
The CPIX inflation rate is the measure of inflation that is used by the South African Reserve Bank (SARB), when making monetary policy decisions for inflation targeting.
- The producer price index, or PPI, is the cost of a ‘shopping basket’ of goods of a typical South African producer of commodities.
Where the CPI and CPIX is used to measure the inflation experienced by households, the PPI is used to measure the inflation of prices that are experienced by the producers of commodities.
The PPI measures changes in prices in the early stages of production, before those price changes have had a chance to filter through to households. Because of this, the PPI is a useful tool to predict changes in the prices of consumer goods and services (which effect CPI and CPIX) in advance.
The PPI inflation rate is thus seen as an early indicator for coming changes in the CPI and CPIX inflation rates.