Inflation is not a single number – it’s a story. It’s the story of many price baskets moving at different speeds, filtered through human psychology, and guided by a central bank that spends as much time anchoring expectations as it does moving interest rates. In a year where headline CPI eased to 3.3% in August and the SARB kept the repo rate at 7.0%, understanding that story helps investors make better decisions.
Why “anchoring” matters
Central banks work to “anchor” what people expect inflation to be. If households expect 10–15% inflation, they demand higher wages and bring purchases forward; that behaviour itself pushes prices up.
TBI Portfolio Manager, Eugene Goosen explains: “Inflation expectations are as important as the data itself. If the market believes inflation will remain contained, policy can be more effective and growth more stable.”
In South Africa, policymakers have signalled a stronger focus on the lower end of the 3–6% band, with public commentary pointing to a 3% anchor.
Headline vs core—and why baskets differ
Headline CPI moves with volatile items such as fuel and certain foods; core strips these out to show the underlying trend. Your personal experience can differ from the average basket: a butcher’s bill can spike while cereals or fruit soften.
When a shock is temporary (for example, a meat supply disruption), policy should not overreact. Understanding the distinction helps investors avoid making long-term calls based on short-term price pain.
Real returns beat nominal headlines
Investors are paid in nominal returns, but they spend in real terms. If your portfolio doesn’t clear inflation, purchasing power falls. That’s why many mandates target “inflation +2–3%” over time. As inflation trends lower, nominal yields may drift down, yet real outcomes can be as good – or better – if inflation is well-anchored.
As Eugene notes:
Nominal yields can look attractive in isolation, but what matters for investors is the ability to grow purchasing power after inflation and tax.”
Currency, rates and practical trade-offs
When local real rates are uncompetitive, currencies tend to adjust, and policy may need to lift rates to attract savings and stabilise the rand. Conversely, when inflation cools, the Bank can hold or cut without stoking instability. Policy alone isn’t a silver bullet. Supply-side reforms still matter, but a credible path to lower inflation supports real incomes and better planning.
What this means for TBI clients
- Keep the real-return lens on. Evaluate portfolios against inflation, not just coupons. With CPI at 3.3%, short-duration income remains attractive relative to recent years.
- Expect uneven price moves. Food may cool while other categories flare. Don’t let a single line item drive portfolio decisions.
- Build for resilience and liquidity. Concentration in a small issuer set can become a bottleneck when conditions change. A broader mix of high-quality credit helps liquidity behave like liquidity.
- Mind the after-tax outcome. For non-pension, provident or annuity investors the SCI co-managed funds are structured with these investors’ needs in mind and optimised for after-tax real outcomes. This helps align what clients keep with what portfolios earn.
The bottom line
Lower, steadier inflation is good news. But it’s also a reminder not to be lulled into complacency. Protecting purchasing power, diversifying issuers, keeping maturities sensible, and being tax-aware remain central to preserving wealth.
