Consumer Price Inflation across the Income Distribution in South Africa

Poverty and inequality are two important characteristics of the post-apartheid South African socio-economic context. Rooted in widespread unemployment amongst the less educated and less skilled and apartheid-imposed inequalities in access to quality education, South Africa’s level of income inequality is amongst the highest in the world, while millions continue to live in abject poverty more than a decade after the country’s democratic transition. The prices that households face are critical in translating nominal income into specific utility or welfare levels and, therefore, price changes over time, given a specific income level, will positively or negatively impact on welfare. Prices, therefore, are critical to our understanding of poor households’ welfare. By monitoring the price changes experienced by some representative household, consumer price indices provide an important measure of changing purchasing power within a given economy. However, irrespective of how the ‘representative’ household is determined, it is clear that real households may differ sometimes considerably in terms of expenditure patterns, weakening the ability of the price index to proxy the experiences of all households. This is, to some extent, borne out by the claims of individuals across the income distribution that the rates of inflation that they experience are significantly different to (and, as is invariably claimed, higher than) the official consumer inflation statistics.