Spur burger and steak for 80 cents 

Fifty years ago, South Africans could enjoy a Spur burger for R0.30 and a 300g Cheddamelt steak for R0.50, while a tin of Ricoffy would set you back R0.25. 

In 2024, these products will cost significantly more after decades of elevated inflation have eroded the purchasing power of the rand. 

A Spur burger last year cost R112.90, while a 300g Cheddamelt steak would set you back R224.90 at the iconic South African restaurant. 

The price of Ricoffy has also seen meteoric growth over the past fifty years, now costing South Africans R164.99 for a 750g tin. 

These price increases were used as examples by Old Mutual Investment Group (OMIG) portfolio manager John Orford to demonstrate the impact of inflation on purchasing power and the need to generate real returns when investing. 

Orford analysed inflation in South Africa since 1911 in OMIG’s annual Long-Term Perspectives report, released at the beginning of June. 

Inflation is the rate at which the prices of goods and services increase over time, measured as a relative change. 

Orford said many people suffer from ‘inflation illusion’, as we do not notice how it erodes spending power over time and avoid recognising its disastrous effect. 

Unless you can grow your investments at least in line with inflation, you will face a declining standard of living in retirement. 

This is why it is vital to plan carefully and ensure you invest in assets that can deliver inflation-beating returns in the long run. This is also why you should consider investment returns in ‘real’ terms.

Inflation in South Africa has averaged 5.4% per year since 1911, which is significantly higher than the 3.3% average in the United States. 

Before 1980, inflation in South Africa was closely tied to inflation in the US, with an average annual rate of 3.6% in South Africa, only marginally higher than the 3.4% yearly average in the US between 1911 and 1980.

South Africa’s inflation tracked global inflation higher in the 1970s, as successive oil price shocks pushed average annual inflation in the US to 8%. 

Only after decisive action by US Federal Reserve Governor Paul Volcker in the early 1980s did inflation in the US begin a sustained decline. 

However, in South Africa, expansionary domestic policies, rapid wage growth and economic isolation resulted in our inflation remaining high in the 1980s. 

Only high real interest rates and a recession led to inflation beginning to moderate from the early 1990s.

The adoption of inflation targeting in 2000 led to lower inflation, and inflation averaged 5.5% from 2000 onwards, compared with a 12.3% annual average in the two decades preceding 2000.

The latest inflation shock originated from the COVID-19 pandemic, which disrupted supply chains and significantly increased production costs. 

In the US, consumer prices rose by an average of 5% in 2021 and by a multidecade high of 8% in 2022. This prompted an aggressive, if belated, response from central bankers, with the US Federal Reserve leading the charge to higher interest rates. 

This type of shock was also seen in South Africa, although it had more to do with a sharp rise in the price of oil due to Russia’s invasion of Ukraine. 

As a result, prices have steadily risen in South Africa over the past fifty years. While an average rate of 5.4% may seem innocuous, this has greatly eroded purchasing power in the country. 

Just as the rate earned on an investment compounds over time, the same applies to inflation. The graphs below show this damaging effect on the price of goods in South Africa.