UP, UP AND AWAY

A rise in inflation has led to a rise in interest rates, bringing more pain to consumers.Economists explain why it's not all bad news

- NASIFA SULAIMAN

ECONOMISTS call it the three Fs: food, fuel and fun. That's basically what the cost of living revolves around although for the average consumer there are plenty of Bs too: bills, bills and more bills. South Africans are currently staggering under the crushing weight of the cost of living, with everything going up: electricity tariffs, food, petrol. We're in such a squeeze there's precious little left to spend on that last f in the list of three Fs. Because really, fun? What does that mean again?

Interest rates rose recently - for the third time this year - by 0,75 percentage points. It's the largest hike since 1994. The increase was driven by a rise in inflation, which leapt to 6,5% in May from 5,9% in April.

It's not good news for consumers already battling to make ends meet. But it's a necessary evil thanks to inflation (see box, right).

"Whether you're employed or unemployed, inflation is going to affect you," Lesetja Kganyago, governor of the SA Reserve Bank, says.

Higher interest rates may be terrible in many ways but there are ways it can be beneficial. Here's a closer look.

YOUR PENSION PLAN

People with debt pay more when interest rates rise, but those with long-term investments or private pensions earn more in this environment. Basically, the amount or value of your investment increases in the same way the cost of your debt does.