How inflation affects your cost of living & future investments

Gugs Mhlungu spoke to Certified Financial Planner, Paul Roelofse.

Listen to their conversation in the audio clip below.

The saying "too much month at the end of the money" is the reality for many South Africans as the cost of living continues to soar.

According to the May 2024 Household Affordability Index, which tracks the prices of 44 basic foods from 47 supermarkets and 32 butcheries, the average cost of the Household Food Basket is R5330,30.

"Inflation certainly is around, it's sticky, it's not going away too quickly."

- Paul Roelofse, Certified Financial Planner

"Our food inflation is 14%...you can see it on the shelves. It's a reality check for us."

- Paul Roelofse, Certified Financial Planner

"If inflation doesn't go down, so won't interest rates. That's the double whammy that households have got right now. We've got a high cost of living through debt and we've got a punishing food inflation that isn't going away." 

- Paul Roelofse, Certified Financial Planner

Roelofse explains that inflation is the measurement of the average increase in prices of goods and services in an economy. 

He adds that it is a key indicator used by central banks to protect the value of the currency in the future.

In his blog post, Inflation robs you into the future…Roelofse provides some tips on how to navigate these high inflation times when it comes to your future investments:

You have to save

SA Households are barely making ends meet, so very little is being saved. Saving is the only way towards financial independence. If you are merely existing from month to month the problem will only get worse as the value of your monthly income is eroded by inflation. Saving towards a nest egg will provide a source of funds in the future which you can use to counter inflation and wean yourself off having to generate an income.

Keep it real

To improve the purchasing power of your savings, your returns should be higher than the rate of inflation. If, for example, inflation is 6% you should aim for returns above this. If you achieve10% ( the so-called nominal rate) then you improve the value of your return by 4%. This is called the real rate of return (Nominal rate – inflation rate = real rate). So when investing in the future you need to keep your returns real. You then are effectively improving the value of your money.

Paying off debt beats inflation

So the way forward is to invest in inflation-beating assets. This is going to be difficult in the foreseeable future as the global economy is slowing and returns on investments will probably weaken even further before they improve. Perhaps your savings strategy should focus on reducing debt in the meantime. There is certainly a better return found in knocking off a high-interest rate which is way above the current rate of inflation.

For more financial tips, visit Roelofse's website at www.investforlife.co.za

Scroll up to listen to the full interview.