Inflation is not just a big word bandied about by finance sector specialists, but is right at the core of your standard of living yesterday, today and tomorrow.

Inflation according to Investopaedia, an online investment encyclopaedia, is the sustained increase in general level of prices of goods and services and is measure by its annual percentage increase.

In other words, if our annual inflation in 5%, it means that the price of say bananas has risen by 5% in the period of one year. So inflation really affects how much value you can get out of every one hundred francs you spend, if inflation is higher you get less and less value.

Recently the National Institute of Statistics of Rwanda (NISR) said in a statement in a statement published in this newspaper that Rwanda’s year-on-year inflation rate rose to 1.98 percent in June from 0.32 percent a month earlier, Prices of food and non-alcoholic drinks, the component with the biggest weight in the country’s consumer price basket, climbed 1.86 percent from a year earlier, boosted by a 9.34 percent year-on-year jump in the cost of vegetables.

Transport costs rose 9.76 percent from a year earlier; education was up 7.35 percent while clothing and footwear prices rose 5.74 percent from June 2009.

Inflation has a more important effect on the value of savings. If you saved one hundred thousand francs today for  one year in a bank that offers you six percent annual interest, the inflation rate will determine if you are really making money on your savings or not. If the inflation rate is higher that the banks’ interest rate then you have lost money.

This is because after one year the one hundred and six thousand will have less value than the one hundred thousand a year earlier because prices of what you can buy have risen.

Therefore, to put it in simple terms where you put your savings and how much money your savings can save for you is underlined by the ongoing annual inflation rate. Even simpler, think about what one thousand francs could do for you ten years ago and what it can do now, and then you will fully understand the importance of inflation.

Governments try to get a hold on the inflation rate because it can decide the standards of living of their citizens. Think about Zimbabwe which had a record inflation rate.

In 1980, when the Zimbabwe dollar was introduced it was roughly equal to the US dollar but by the time it was abandoned in 2009 after the inflation rate rose to an estimated 17,000%! According to Wikipedia, on the release of the Zimbabwe’s $100 billion banknote it could only buy 3 eggs.

So mind about your inflation next time you save or invest.

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