"Recently someone made the observation that the price of fuel is going up at a rapid rate, but that most other prices in the economy aren’t," writes Chris Becker, an economist at ETM Analytics. "I then pointed out that the price of a King Steer burger, since 2002, has gone up at the same rate as the price of a liter of petrol, by over 200%."
Ten years ago, a litre of petrol cost R3.61. Now we’ve hit R12.22 per litre. Even milk, which used to cost R3.79 per litre, will now cost you R9.79. Isn’t that something?
This is what sparked Becker to research the rate of price increases that we have seen on everyday items in the past ten years. By comparing the past and present prices, Becker highlights how consumers in the real world have to pay more for some of their favourite products each year.
Most household products (food, drink, fuel, cleaning products etc.) are more than twice as expensive as they were in 2002. And it's not by accident.
Becker explains that these price increases are a result of the Reserve Bank setting out to drink price year in and year out. This is called "inflation targeting".
"Of course, some prices have fallen over the past ten years, mostly technology prices, such as TVs, computers, etc. But that is despite the Reserve Bank trying to push all prices higher," adds Becker.
So how can we afford the cost of living?
Well, it depends on each individual or household’s salary increases. If you only earn "inflation" related salary increases, an increasing proportion of your income is spent on basics like food and fuel. But if you're lucky enough to get increases above 13% per year, then you're managing to just stay ahead, says Becker.
But this isn't happening in South Africa alone."We are seeing the same trend in most economies in the world right now," says Becker. "Price inflation is a global phenomenon right now, and has been since 1971. There is nothing out there to suggest this will change anytime soon."
Is our money worth less now?
According to Becker, one of the main contributors to the inflation rate is the Reserve Bank. "It is an explicit goal of the Reserve Bank to create price inflation," explains Becker. "Under this policy (inflation targeting), the Reserve Bank sets out to drive the price of things up at a rate of between 3-6% each year, compounded."
So how is this done? By printing new money out of thin air, in coordination with the banks."Very simply: By printing money, the Reserve Bank can lower interest rates. And vice versa," writes Becker.
"The price of a King Steer Burger and a liter of petrol are both up by nearly 250% since 2002. It shouldn’t be a surprise for anyone to learn that the Reserve Bank has increased the money supply by 250% since then, too."
"In other words, by increasing the supply of money available in the economy, the Rand is weakened," adds Becker. "It is the value of the Rand that has gone down, not the price of burgers and petrol that have gone up."
So what can you – as a consumer – do about this? Read on to find out.
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Check out @chrislbecker on Twitter and check out his blog at www.chrislbecker.com.