Let's get this out first; I am not saying inflation is a bad thing; in some cases, it's a good thing when used sparingly to help stimulate economic growth and assist increased GDP.
This perhaps was the case for South Africa as it came out of apartheid. As we modernised many of our operations, so too did we fall for many of the financial engineering tricks that central bankers and governments use worldwide.
As someone who earns Rands for a living, spends them and saves a portion of their wealth in this currency, I have a vested interest in its ability to hold value. I've always been sceptical of the currency, I think every South African in their right mind would be, so I like to do calculations from time to time.
Some say gold is the truth; some say bonds are the truth, or rather as close to the truth as you're going to get. So I thought let's have a look at how South Africa has performed when compared to gold.
Note: The gold price is based on the average closing price for that year
|Year||Gold Price||ZAR/USD||Gold Price ZAR||% Change|
|1990||$383.73||ZAR 2.59||ZAR 993.86||N/A|
|1991||$362.34||ZAR 2.63||ZAR 952.95||- 4.12|
|1992||$343.87||ZAR 2.89||ZAR 993.78||+ 4.28|
|1993||$360.05||ZAR 3.19||ZAR 1 148.56||+ 15.57|
|1994||$384.16||ZAR 3.42||ZAR 1 313.83||+ 14.39|
|1995||$384.07||ZAR 3.63||ZAR 1 394.17||+ 6.11|
|1996||$387.73||ZAR 3.95||ZAR 1 531.53||+ 9.85|
|1997||$331.00||ZAR 4.42||ZAR 1 463.02||- 4.47|
|1998||$294.12||ZAR 4.98||ZAR 1 464.72||+ 0.12|
|1999||$278.86||ZAR 6.15||ZAR 1 714.99||+ 17.08|
|2000||$279.29||ZAR 6.39||ZAR 1 784.66||+ 4.06|
|2001||$271.19||ZAR 7.77||ZAR 2 107.15||+ 18.07|
|2002||$310.08||ZAR 11.47||ZAR 3 556.62||+ 68.79|
|2003||$363.83||ZAR 7.91||ZAR 2 877.90||- 19.08|
|2004||$409.53||ZAR 6.71||ZAR 2 747.95||- 4.52|
|2005||$444.99||ZAR 5.85||ZAR 2 603.19||- 5.27|
|2006||$604.34||ZAR 6.28||ZAR 3 795.26||+ 45.79|
|2007||$696.43||ZAR 7.39||ZAR 5 146.62||+ 35.61|
|2008||$872.37||ZAR 7.99||ZAR 6 970.24||+ 35.43|
|2009||$973.66||ZAR 10.32||ZAR 10 048.17||+ 44.16|
|2010||$1,226.66||ZAR 7.46||ZAR 9 150.88||- 8.93|
|2011||$1,573.16||ZAR 6.91||ZAR 10 870.54||+ 18.79|
|2012||$1,668.86||ZAR 7.59||ZAR 12 666.65||+ 16.52|
|2013||$1,409.51||ZAR 9.11||ZAR 12 840.63||+ 1.37|
|2014||$1,266.06||ZAR 10.79||ZAR 12 669.42||- 1.34|
|2015||$1,158.86||ZAR 12.26||ZAR 14 207.62||+ 12.14|
|2016||$1,251.92||ZAR 15.23||ZAR 19 066.74||+ 34.20|
|2017||$1,260.39||ZAR 12.37||ZAR 15 591.02||- 18.23|
|2018||$1,268.93||ZAR 14.46||ZAR 18 348.73||+ 17.69|
|2019||$1,393.34||ZAR 14.05||ZAR 19 576.43||+ 6.69|
|2020||$1,771.90||ZAR 14.60||ZAR 25 869.74||+ 32.15|
Running the numbers
If we take the increases and decreases, add them up and divide them by 29 years the average increase would sit around 12% a very alarming percentage when we take into consideration my previous calculation of inflation based ONLY on the increase in broad money from the South African reserve bank.
When we factor into this the fact that gold itself as an inflation rate of around 2%, then over 30 years your absolute purchasing power loss would be even more.
Gold it's not a perfect measurement, so factoring that increase you'd have a measure of something like 18% increase, which is astronomical destruction of savings over a 30 year period.
Has GDP increased in South Africa over the last 30 years? The increase in labour markets after apartheid, the opening up of trade with other countries, the increased productivity from machinery and technology have all been wildly deflationary and helped kept the inflation genie in the bottle.
I realise the numbers are by no means absolute and if you are statistical, please feel free to shoot holes in the calculations, but regardless of what I get wrong. I think what I get right here is an alarming rate of increased debasement.
Humour me for a second
Let's say for the sake of calculations that your capital cost is 12%, that's the cost of holding cash each year. If you are to increase your wealth, you first need to beat that decrease before you even think about making a profit.
How many investment opportunities out there are kicking off 12% returns APY?
I would imagine very little, real estate, stocks, bonds in South Africa should theoretically be a negative return since you take your profits in Rands and on top of that.
You need to pay tax on those returns, knocking off additional margin making it even less probable that you're going to return an absolute increase in purchasing power YOY.
Taking losses like that each year quickly compounds over time, especially if you're unaware of how powerful compound losses can be. People are so focused on becoming nominally rich that they're willing to accept becoming purchasing power poor.
Have your say
What do you good people of HIVE think?
So have at it my Jessies! If you don't have something to comment, comment "I am a Jessie."
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