Everything gets more expensive as long as we have inflation. Inflation is a measurement of how much prices are rising by. It is worked out by taking a 'basket' of goods and measuring the price changes in that basket. This gives CPI or the Consumer Price Index, which has been high for a while already. Now if everything is getting more expensive but you still earn the same money then in real terms you have less, hence yearly pay rises. So what would be an appropriate pay rise?
- Inflation peaked at 13.7% August 2008
- Inflation now at 8% in May 2009
- Average inflation June 2008 to May 2009 10.62%
There are strikes going on at the moment demanding increases that not only match the rate of inflation, which will just keep you standing still, but calling for above inflationary increases to increase pay in real terms. This is understandable, after all no-one wants to stay where they are, we all want life to improve and to have more money. Althouh the devil, as always, is in the detail. Statistics SA recently re-weighted the inflation basket leading to a sharp drop in CPI. Statistics SA say that their new weighting is more accurate.
The thing is due to the re-weighting it can lead pay negotiators to believe that inflation is artificially low and thus demand higher increases. The average CPI of 10.62% is a straight average that does not take into account the re-weighting. Basically life got more expensive by at least 10% from June 2008 to May 2009. Just to stay in the same place would require a 10% pay rise, and if you plan a budget this should be apparent. With the economy in recession many employers fear this extra burden and it will lead to further price inflation as new pay scales raise costs. This may be only the beginning of the strike season.
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