Why your grocery bill doesn't match the inflation rate: understanding SA's new economic reality

IF YOU'VE ever questioned why your monthly expenses seem to climb faster than Stats SA's official inflation figures suggest, you're experiencing what economists call the personal inflation gap. This disconnect between official statistics and lived reality was recently brought into sharp focus by the Reserve Bank's latest policy shift - one that promises to reshape South Africa's economic landscape for years to come.

The personal nature of inflation

The Consumer Price Index measures inflation by tracking a representative basket of goods and services, but as STANLIB senior economist Ndivhuho Netshitenzhe explains, "we live different lives".

Your personal inflation rate depends entirely on what you buy and how much you earn.

Research by the Bureau for Economic Research reveals that lower-income households face significantly higher inflation than official figures suggest. Transport costs alone can consume over 30% of income for the poorest households. When petrol prices surge or taxi fares increase, these families experience inflation rates far exceeding the official number. Even lifestyle choices matter. With meat inflation currently elevated, a family that prefers lamb over grains faces higher grocery inflation than their vegetarian neighbours. As Netshitenzhe notes: "If you buy more meat than another household that buys more grains and cereals … your food inflation will be higher or lower."

The global tug-of-war on your wallet

South African consumers don't exist in a vacuum. Global economic forces directly impact what we pay at the till. When US inflation rises, the Federal Reserve typically raises interest rates, making global borrowing more expensive. This affects South African companies' profits and can slow investment.

Throughout 2023, aggressive US rate hikes created headwinds for emerging markets worldwide. Conversely, China's economic situation offers relief. As the world's manufacturing hub and South Africa's largest trading partner, China's low inflation - which has bordered on deflation - helps keep prices down. According to Reuters reports from late 2023, China's weak domestic demand has kept factory-gate prices low. The cars, electronics, and clothing we import from China are cheaper than they might otherwise be, tempering our overall inflation.

A bold new target: the 3% commitment

On Thursday, November 20, the South African Reserve Bank cut the repo rate by 25 basis points to 6.75%, marking the first monetary policy decision under the country's new inflation framework. This is the sixth cut in the current cycle, bringing the prime lending rate to 10.25%. The decision follows Finance Minister Enoch Godongwana's announcement narrowing the inflation target to 3% with a 1% tolerance band, effectively ending the two-decade-old 3%-6% range.

Reserve Bank Governor Lesetja Kganyago emphasised that "members agreed there was scope now to make the policy stance less restrictive, in the context of an improved inflation outlook".

This represents arguably the most significant macroeconomic policy shift South Africa has made in decades. The benefits are substantial: aligning with the 3% target common among trading partners like Brazil and Chile makes South African goods and financial products more attractive to foreign investors. Lower inflation means your rand stretches further and, over time, leads to lower interest rates for businesses and homeowners.

What this means for your pocket

Governor Kganyago noted that while October's inflation reached 3.6% - higher than the 3% average for the first half of the year - "the uptick is mainly due to non-core items: meat, vegetables, and fuel".

The Reserve Bank views this pressure as temporary, expecting inflation to decline from early 2026. For homeowners, the impact is tangible. BetterBond data shows that with each 0.25 percentage point rate cut, owners of a R2 million house with a 20-year mortgage save approximately R300 monthly. With six rate cuts totalling 150 basis points since September 2024, many South Africans are already experiencing meaningful relief.

However, Allan Gray's Sandy McGregor provides important context: "A lower target does not require higher rates. It provides the opportunity for lower rates".

As inflation stabilises around 3%, the entire structure of interest rates can reprice lower, potentially breaking South Africa's economic stagnation.

The road ahead: patience and perspective

Not all economists are equally optimistic. Dr Roelof Botha warns that "the lower inflation target effectively means that interest rates will remain elevated on a permanent basis, especially when a currency depreciation occurs".

He argues that higher interest rates cannot prevent price shocks like those experienced after Covid-19. Yet the broader economic indicators suggest momentum is building. South Africa's unemployment declined to 31.9% in the third quarter from 33.2% in Q2 - its lowest level since late 2024. The country was removed from the Financial Action Task Force's grey list, received an S&P credit rating upgrade, and the rand hit its strongest level against the dollar since 2023 breaking the R17 barrier.

Looking ahead, Kganyago noted that "the Quarterly Projection Model still shows gradual rate cuts as inflation subsides," though the MPC will decide "on a meeting-by-meeting basis".

The central bank has revised its 2025 growth forecast upward to 1.3%, with expectations of nearing 2% over the forecast horizon.

Understanding your reality

The official inflation rate remains a vital economic compass, but it's not a precise map of your financial journey. Your reality is shaped by what you buy, how much you earn, and winds from global economies. The new 3% target represents a commitment to a more stable, competitive future, but achieving it requires patience and coordination between fiscal and monetary authorities.

For ordinary South Africans, the message is cautiously optimistic. While your grocery bill may still feel heavy, the combination of falling interest rates, contained inflation, and improving economic fundamentals suggests better times ahead. The key is understanding that inflation is deeply personal - and that your experience, while different from the official number, is no less real.

Sanjith Hannuman is the managing director of Avinash Consultants & Actuaries.

** The views expressed do not necessarily reflect the views of IOL or Independent Media. 

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