What is inflation?
Inflation is the rate at which prices rise over time. If inflation is 5%, something that cost R100 last year costs about R105 this year. A little inflation is normal and even healthy; too much erodes the value of your money, because each rand buys less than before.
This is why simply keeping cash under the mattress loses you money in real terms: if prices rise faster than your savings grow, your buying power shrinks.
What is CPI?
In South Africa, inflation is measured by the Consumer Price Index (CPI), published by Statistics South Africa. CPI tracks the price of a representative "basket" of goods and services - food, transport, housing, electricity and more - and reports how much that basket's cost has changed compared with a year ago.
The key players
- Stats SA - measures and publishes CPI (the inflation number)
- The SARB - the South African Reserve Bank, which aims to keep inflation in check
- The MPC - the SARB's Monetary Policy Committee, which decides interest rates
- The repo rate - the key interest rate the SARB sets
How interest rates control inflation
The SARB has an inflation target range it tries to keep CPI within. Its main tool is the repo rate - the rate at which it lends to banks, which flows through to the interest you pay on loans and earn on savings.
- When inflation is too high, the SARB tends to raise rates. Borrowing becomes more expensive, people spend less, and price pressure eases.
- When the economy is weak, it may cut rates to make borrowing cheaper and encourage spending and investment.
The repo rate also sets the prime rate - the benchmark banks use for loans - so a rate change affects your bond, car finance and credit-card costs directly.
Think of interest rates as the economy's thermostat: raise them to cool an overheating economy, lower them to warm up a sluggish one.
Why this matters for investors
| When rates... | Often tends to... |
|---|---|
| Rise | Make cash and bonds more attractive; can pressure shares and property; can support the rand |
| Fall | Support shares and property; reduce returns on cash; can weaken the rand |
These are tendencies, not guarantees - markets are complex and often move ahead of the actual decision. But understanding the direction helps you make sense of why markets react so strongly to inflation data and rate announcements. A weaker currency also feeds inflation, which is why the rand and rates are closely linked.
Protecting your money from inflation
- Invest, don't just save - growth assets like shares have historically outpaced inflation over the long run.
- Harness compounding - as covered in our guide to compound interest, long-term growth is your best defence.
- Diversify - different assets respond differently to inflation and rates.
- Mind the real return - what matters is your return after inflation, not the headline number.
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Launch EZvest - it's free to start ->Educational content only. This article is general information, not financial advice, and nothing here is a recommendation. Economic conditions and central-bank decisions are uncertain. Always consult a licensed financial professional before making decisions. How we research and review these guides.