A basket of everyday goods that cost R1,000 and now costs R1,060 has taken buying power from you, without a single debit appearing anywhere.
That is inflation: the broad rise in prices over time. When prices rise, the same number of rand buys less, even if the balance in your account has not fallen.
It matters because many financial goals sit in the future. A university cost, monthly retirement budget or emergency reserve stated only in today’s rand can look more affordable than it will be. An investment may also grow in rand terms while making little progress after inflation, fees and tax.
And there is no single personal inflation rate. A household spending heavily on medical care, education or transport may experience price changes differently from the published average. Official inflation is still a useful common measure, but it should not replace the spending pattern behind your own goal.
Try this now
Choose one goal that is more than three years away. Write down its estimated cost in today’s money, its date and the inflation assumption, if any, used to estimate the future amount. If the future figure is missing, mark it as a question rather than inventing certainty.
Ask your advisor
- How has inflation been allowed for in this goal, and what happens to the result if the assumption is higher?
Inflation and investment returns are uncertain. Projections should show their assumptions clearly.