What is the inflation rate?

Inflation is the term used for a continuous growth in cost of goods and services. This is reported as a percentage known as the inflation rate. The inflation rate is measured by comparing the price of certain goods to its cost the previous year. The collective price of these goods is known as the Consumer Price Index (CPI).

The consensus is that inflation is the consequence of money supply growing faster that the economy. In other words, money is printed faster than we can grow our businesses. This also influences our currency, since it will weaken against another currency at the same rate as the difference between the countries’ inflation rates. Let me explain it with an example.

If our inflation rate is around 5%, and the inflation in the United States (US) is 2%, the difference is 3%. As a result, our Rand will weaken against the Dollar by about 3% per year. This will obviously not happen in a straight line, since the market is not rational.