Inflation can therefore be described as a persistent general increase in prices. In the twelve months up to January 1997, the cost of that basket rose by 9,4 per cent. This increase of 9,4 per cent in the so-called consumer price index is referred to as the inflation rate. From 1974 to 1992 the South African inflation rate has ranged between 10 and 20 per cent. It has been brought down to less than 10 per cent per annum since 1993.
Inflation is regarded as a bad process because it leads to distortions and problems in an economy.
For instance, R100 put underneath a mattress ten years ago can now purchase only one third of the goods and services that it could have done in 1987. Even if you save in the form of savings deposits which pay interest, the interest may not be enough to compensate you in full for inflation. This also applies to pension planning, where a person may, for example, save for a pension during his entire working life, just to find at the end of his career that his savings have been eroded by inflation. The wealthy, in contrast, can usually partly protect themselves against inflation by investing in assets, such as shares or property, which increase in value during periods of inflation. This means that Government gains control over an increasing proportion of society's resources without formally getting the approval of Parliament to raise taxes.