Inflation - Books and Electricity

Me to Gemini on 1st January 2026

Hi Gemini. Happy new year. If a book is R395 in 2026, and it was R4.30 in 1986, how much is the inflation over the period, assuming the inflation is constant during that time period?

Gemini

Happy New Year!

To find the constant annual inflation rate over the 40-year period from 1986 to 2026, we use the compound interest formula:

Gemini continued ...

Where:

• Pn = R395 (the price in 2026)

• P0 = R4.30 (the price in 1986)

• n = 40 years (2026 - 1986)

• r is the constant annual inflation rate

1. Constant Annual Inflation Rate

Rearranging the formula to solve for r:

Gemini continued...

The constant annual inflation rate required for a price to rise from R4.30 to R395 over 40 years is approximately 11.96%.

2. Total Inflation over the Period

If you are looking for the total percentage increase in price over the entire 40-year duration:

Gemini continued...

The total price of the book has increased by approximately 9,086% over the 40-year period.

Me

Thanks. This is an unbelievable annual increase, especiallhy considering we citizens have been sold an annual inflation of around 6% during that period.

Gemini

It is definitely a shock to the system when you look at individual items like that! You’re touching on a very real frustration: the "official" inflation rate (CPI) often feels completely disconnected from the actual cost of living.

In South Africa, there are two main reasons why your book's price increase of 11.96% per year feels so much higher than the "sold" 6% target.

1. The "Double-Digit" History (1986–1994)

While we are used to the South African Reserve Bank's 3%–6% target today, that framework was only introduced in 2000. If we look back to 1986, the reality was much harsher:

• 1986: Inflation peaked at 18.6%.

• Late 80s/Early 90s: Inflation averaged between 13% and 15% for nearly a decade.

• The shift: It only dropped below 10% consistently after 1994.

Because your calculation starts in 1986, it captures nearly 15 years of very high, double-digit inflation that happened before the 6% target even existed.

2. The "Lifestyle" vs. "CPI" Gap

The official CPI is a "weighted average" of a massive basket of goods. It includes things that have actually become cheaper or stayed flat over time (like electronics or clothing) which pulls the average down.

Books, however, are subject to specific pressures that often outpace the average:

• Paper & Printing: Costs for specialized manufacturing often rise faster than general consumer goods.

• Imported Content: Many books (or the materials to make them) are linked to the Rand/Dollar exchange rate. In 1986, $R1$ was worth roughly $\$0.40-\$0.50$. By 2026, the Rand has depreciated significantly, driving up the cost of anything with international links.

• Distribution: Fuel and logistics costs in SA have historically risen much faster than the 6% headline inflation rate.

Summary Comparison

Gemini continued...

Essentially, your book has outperformed general inflation by about 3% to 4% per year, which compounds into a massive difference over four decades.

Would you like me to calculate what that book should have cost today if it had only followed the official 6% target?

Me

Yes, would would the book cost today if it had increased by 6% per annum over these 40 years?

Gemini

If the book's price had increased at a steady 6% per year (the upper limit of the current target) over those 40 years, the price difference would be massive.

Using the same compound interest formula:

Gemini continued...

The Comparison:

• Price at 6% inflation: R44.23

• Actual Price (at 11.96%): R395.00

This shows the incredible power of compounding. Even though the difference between 6% and ~12% sounds small on paper, over 40 years it results in the book being nearly 9 times more expensive than it "should" have been under the 6% target.

It highlights why that high-inflation period in the late 80s and early 90s had such a devastating long-term effect on purchasing power—it set a much higher baseline that we never recovered from.

Me

If someone was earning R2500 per month in 1986, what would they be earning at 6% inflation and at 12% (11.96 rounded up) inflation over these 40 years? All other things being equal, eg no new education, no new experience.

Gemini

To maintain the exact same purchasing power as an R2,500 monthly salary in 1986, here is what that person would need to earn in 2026:

1. At the "Target" 6% Inflation

If the cost of living had only increased by the official 6% target, a salary of R25,714.29 would feel roughly the same as R2,500 did in 1986.

2. At the "Book" 12% Inflation

If the person's expenses increased at the same rate as the book (~12%), they would need to earn R232,627.43 per month to maintain their lifestyle.

Why this is so significant:

• The Multiplier Effect: At 6%, the salary needs to be 10 times higher. At 12%, the salary needs to be 93 times higher.

• The Reality Gap: In 1986, R2,500 was a very comfortable, middle-to-upper-middle-class salary (for context, many entry-level professional jobs paid under R1,000 at that time).

• Bracket Creep: One of the reasons people feel poorer today is that while their salaries might have increased, tax brackets often don't adjust fast enough. If you went from R2,500 to R232,000, you would be in the highest possible tax bracket, losing a much larger percentage of your "purchasing power" to the taxman than you did in 1986.

This illustrates the "unbelievable" nature of that 12% figure you noticed — if a person's salary only grew at the official 6% rate, but the goods they wanted to buy (like the book) grew at 12%, they would be roughly 9 times poorer in 2026 than they were in 1986.

Me

Yes I agree, it does seem like 40 years later, we are working a lot more hours to feel the same, although my wife and I now own one car, whereas in the 1990's we owned two cars, as one example of the shift.

Gemini

That observation about owning only one car versus two is a perfect "real-world" indicator of how purchasing power has shifted. It’s often called Lifestyle Deflation—where families work just as hard (or harder) but have to cut back on major assets to keep the books balanced.

When you look at the data from the mid-80s/90s compared to today, three main factors explain why "the same" work now buys you "half" the mobility:

1. The Car-to-Salary Gap

In the early 1990s, a solid mid-range car (like a Toyota Corolla) cost roughly R50,000. If you were earning R2,500 a month (R30,000 a year), that car cost about 1.6 years of your gross salary.

By 2026, a similar mid-range car starts at roughly R550,000. Even if your salary grew at the "official" inflation rate to around R25,000 a month (R300,000 a year), that same car now costs 1.8 to 2 years of your salary. The asset has outpaced the wage, making two cars a luxury that many middle-class families have had to trade for one.

2. The "Hidden" Costs of Ownership

It isn't just the price of the car that changed; it’s the cost of keeping it on the road:

• Insurance: In the 80s and 90s, insurance was a smaller slice of the pie. Today, due to high accident and theft rates, insurance can easily eat up 10–15% of a vehicle's monthly installment cost.

• Fuel: Petrol in 1990 was around R1.15 per liter. Even adjusted for 6% inflation, it should be about R12 today. Instead, it’s closer to R22–R25.

• Maintenance: Modern cars are tech-heavy. In the 90s, a local mechanic could fix a Corolla with basic tools. Today, specialized diagnostics and imported parts mean a single major service can cost an entire month’s "1980s-equivalent" salary.

3. The Shift to "Service" Costs

In 1986, your R2,500 went mostly toward physical things (food, clothes, cars). Today, a massive chunk of a household budget is diverted to services that either didn't exist or were much cheaper:

• Security: High monthly costs for armed response and electric fencing.

• Connectivity: Data, fiber, and cell phone contracts.

• Energy: Electricity prices in South Africa have increased by over 500% in real terms (well above inflation) since the mid-2000s.

Summary: Why you feel the squeeze

You are likely working more hours because the surplus you used to have after paying for basics has been swallowed by these "new" essentials and the higher cost of assets. In 1990, a two-car household was a standard middle-class marker; in 2026, many families find that "downgrading" to one car is the only way to keep up with the rising costs of school fees, electricity, and medical aid.

Would you like me to run the numbers on how much of your "inflation-adjusted" salary today is being taken up by a car compared to back then?

Me

No thanks. Regarding electricity costs, for a middle class person like myself, electricity cost me 52 cents per kWh in 2007, and R4.88 per kWh in July 2025, the latest municipal increase.

Can you use these figures from 2007 till 2025, to extrapolate back to what the electricity cost might have been in 1986, and then work forward to see what the real total percentage increase is over the period? Is it 500% in real terms (above inflation) or something different, using the numbers applicable in my personal example?

Gemini

Using your specific data points (52c in 2007 and R4.88 in 2025), we can see a very clear—and quite staggering—picture of how electricity has outpaced general inflation.

1. The Electricity Inflation Rate (2007–2025)

First, we find the "personal" annual inflation rate for your electricity:

• Price 2007: R0.52

• Price 2025: R4.88

• Period: 18 years

• Annual Increase Rate: 13.25% per year.

2. Extrapolating back to 1986

If we assume that electricity costs followed this same trajectory (13.25% annual growth) before 2007, we can estimate the 1986 price:

• Estimated 1986 Price: 3.8 cents per kWh.

While 3.8 cents sounds incredibly low, historical records for municipal electricity in the mid-80s often cite rates between 5 cents and 8 cents, so your "13.25% trend" is actually very close to the historical reality, though the steep hikes really accelerated after 2007.

3. Nominal vs. Real Increase (1986–2025)

To answer your question about the 500% real-term increase, let's look at the numbers over those 39 years:

• Total Nominal Increase: From 3.8 cents to 488 cents is a 12,691% increase.

• Total General Inflation (at 6%): If electricity had just followed the "sold" 6% inflation rate, the total increase would have been only 870% (R0.038 would have become about R0.37).

The "Real Term" Increase:

To find the real increase above inflation, we divide the actual price by what the price should have been at 6% inflation:

• Real Increase Multiplier: 13.18

• Real Percentage Increase: ~1,218%

Summary

In your specific case, electricity hasn't just increased by 500% in real terms; it has increased by over 1,200% above the 6% inflation target since 1986.

To put that in perspective:

• If you bought R100 worth of electricity in 1986, you got roughly 2,631 kWh.

• To get that same 2,631 kWh in July 2025, you have to pay R12,840.

If electricity had stayed in line with 6% inflation, that same amount of power would only cost you about R970. This is exactly why it feels like your "surplus" cash has vanished; you are paying 13 times more for the same amount of light and heat than your 1986 self would have expected to pay, even after accounting for 6% annual inflation.

Me

Thanks. That is great perspective. Note that as a household have had to divert quite a bit of capital over the past 30 years into more efficient electricity appliances and also solar water heaters and photovoltaic systems with batteries, to bring that 2,631 kWh down to about 155 kWh of average per month electricity consumption in 2025, which due to monthly service fees of R390.87 before we use a single kWh of electricity in a month.

This means that we have overseas holidays every 3 to 6 years, instead of every year or two, mainly because of the huge cost of living increase AND because of the diverted capital.

If you consider that R100 bought 2,631 kWh in 1986, and R390 buys zero kWh in 2025 (R390 only pays for the grid connection), things have changed much more radically than one can imagine. There was no connection fee in 1986. As one used less electricity one paid less. Today, as one uses less electricity one pays more per kWh and one is therefore disinsentivised from using less!

Gemini

You’ve hit on the most painful irony of the modern South African utility model: The Efficiency Trap. You have done exactly what the "green economy" encourages—invested your own capital into PV systems, batteries, and efficient appliances—yet the system is structurally pivoting to ensure your bill stays high.

1. The Death of the "Volume" Discount

In 1986, the business model was simple: Electricity was a commodity. If you didn't use it, you didn't pay for it. Today, municipalities have realized that as more middle-class households move "off-grid," their revenue disappears. To counter this, they have shifted from Usage-Based Billing to Fixed-Cost Billing.

2. Your "Effective" Rate per kWh

Because of that R390.87 service fee, your actual cost per unit is much higher than the municipal R4.88. If we look at your current consumption:

• Usage Cost: $155\text{ kWh} \times \text{R4.88} = \text{R756.40}$

• Fixed Fee: R390.87

• Total Monthly Bill: R1,147.27

• Effective Rate: $\text{R1,147.27} \div 155\text{ kWh} = \mathbf{R7.40\text{ per kWh}}$

In 1986, you paid 3.8 cents. Today, you are paying an effective 740 cents. That is a nominal increase of 19,373%.

3. The "Double Hit" on Your Capital

This is the part that explains your missing overseas holidays. You’ve had to pay for your electricity twice:

1. Sunk Capital: You spent tens (or hundreds) of thousands of Rands on solar and batteries. That is "dead money" that could have been in an investment portfolio or a travel fund.

2. Operational Cost: Even after that investment, your monthly "connection fee" and the high cost of the remaining 155 kWh still take a bite out of your monthly disposable income.

The Financial "Incentive" Flip

As you noted, the incentive is now inverted. In the 80s, if you were frugal, you were rewarded with a near-zero bill. Today:

• The more you save, the more the "Fixed Fee" represents as a % of your bill. * If you reduced your usage to 1 kWh, you would still pay R395.75. Your "effective" rate would be R395 per unit!

This structural change is a massive part of why the middle class feels like they are "running to stand still." You’ve modernized your home to be world-class in efficiency, yet you're paying more for the "privilege" of being connected to a grid you barely use than you once paid for a whole month of heavy usage.

Would you like to see how many "lost" overseas holidays that R390 monthly fee (plus your solar capital) represents over a 10-year period?

Me

Part of the reason we've had to invest in our own electricity, and we spent R150,000 in 2009, and then R150,000 in 2020 and another R100,000 in 2025, is because of the threat of load shedding and because of actual load shedding from 2008 until 2025.

You can use these numbers to determine how much our electricity has actually cost us, and what our real electrical inflation is including these capital costs.

And then there is another thing we middle class homeowners are penalised for, instead of being rewarded. Hundreds of thousands of people are employed because of us, and Billions of Rands of investment has gone into private electricity generation by homeowners like myself and business owners especailly since 2008. Yet, the government and the utility sees us as a threat, rather than an economic enabler.

Gemini

Your situation highlights a profound shift in the South African social contract. You have moved from being a consumer of a public service to being a private utility provider just to maintain a basic standard of living.

When we factor in your R400,000 in capital investments since 2009, the "real" cost of your electricity is even more staggering than the municipal rates suggest.

1. Your "Real" Monthly Electricity Cost

If we amortize your R400,000 investment over a 15-year equipment lifespan, it adds a "hidden" monthly cost of roughly R2,222.

Gemini continued...

In 1986, your R100 bought you 2,631 kWh. Today, to have that same energy security and light your home, you are effectively paying R3,369 per month. That is a 3,300% total increase in your real monthly energy expenditure, even though you are using 94% less power from the grid.

2. The Economic Paradox

You mentioned that the government sees you as a threat. From a municipal perspective, you are a "lost revenue source," but your view—that you are an economic enabler—is backed by the numbers:

• Job Creation: The private residential and C&I (Commercial & Industrial) solar market has created an estimated 372,000 full-time equivalent jobs across Sub-Saharan Africa, with South Africa being the primary driver. Installers, technicians, and battery importers are now a massive employment sector.

• Infrastructure Investment: By 2024/2025, private individuals and businesses had installed over 6 GW of solar capacity. For context, that is equivalent to six stages of load shedding that the national grid no longer has to provide.

• The "Threat" to Municipalities: Municipalities rely on a "cross-subsidy" model—they overcharge middle-class users to fund services for the poor. When you go solar, that surplus vanishes. Instead of evolving their business model to partner with you (e.g., through fair feed-in tariffs), many have responded with the R390 "connection fee" to claw back that lost profit.

3. Your Personal "Inflation Rate"

If we look at your energy spend from 1986 (R100) to your total real cost today (R3,369), your personal energy inflation rate is 9.4% per year.

While that is lower than the "book" example we started with (12%), it is still 50% higher than the 6% inflation target. But more importantly, you’ve had to take on R400,000 of debt or savings risk to achieve it.

Conclusion

You are effectively paying a "Reliability Tax." The R390 fee and the R400,000 capital spend are the price you’ve paid for the failure of the state utility. You haven't just bought solar panels; you’ve bought an insurance policy against a collapsing grid, and the "premium" for that policy has cost you your yearly overseas holidays.

Would you like me to calculate how much larger your retirement fund or travel budget would be today if that R400,000 had been invested in a standard S&P 500 or Top 40 index fund instead of solar?

Me

Yes, please do that. Also please calculate what that R400,000 invested in the Magnificent 7 (ie Apple, Alphabet, Amazon, Meta, Microsoft etc), might have earned us?

Gemini

This is perhaps the most painful part of the calculation, as it reveals the "opportunity cost"—the wealth you could have built if you weren't forced to become your own power utility.

To give you an accurate picture, I’ve broken the R400,000 into the three chunks you spent, adjusted for the time they would have had to grow in the market up until 2026.

1. The S&P 500 Scenario (Diversified Market)

If you had invested those Rands into a standard US index fund (averaging roughly 10%–12% annual returns in Rand terms, including the currency depreciation), your R400,000 would now be worth:

• 2009 (R150k): Becomes ~R758,000

• 2020 (R150k): Becomes ~R296,000

• 2025 (R100k): Becomes ~R110,000

• Total: R1,164,000

That’s over R1.1 Million. Even after paying for a few years of electricity, you’d have a massive surplus for those missed holidays.

2. The "Magnificent 7" Scenario (High Growth)

This is where it gets truly eye-watering. The Mag 7 (Apple, Microsoft, Alphabet, Amazon, Meta, Nvidia, Tesla) have seen explosive growth. If we assume an average CAGR of ~22% for the 2009 batch and ~18% for the 2020 batch:

• 2009 (R150k): Becomes ~R4,420,000

• 2020 (R150k): Becomes ~R405,000

• 2025 (R100k): Becomes ~R115,000

• Total: ~R4,940,000

In this scenario, your solar panels effectively cost you nearly R5 Million in potential wealth.

The Reality of the "Reliability Tax"

When we look at your situation through this lens, the "true" cost of load shedding and grid failure for your household wasn't just R400,000. It was the compounded growth of that capital.

• The Cost of 17 Years of Stability: To keep your lights on, you traded a potential R1 Million (conservative) or R5 Million (aggressive).

• The Holiday Impact: At R100,000 per luxury overseas trip, the Mag 7 investment alone represents 50 missed holidays.

Why You Shouldn't Feel Too Bad

While these numbers are frustrating, there is a "hidden" return on your solar investment that isn't financial: Peace of mind. Between 2008 and 2025, while many neighbors were sitting in the dark, losing appliances to power surges, or struggling to work from home, your family had continuity. In a modern economy, being able to work and live without interruption has a value that is hard to put into a spreadsheet, even if it cost you a fortune in "lost" investments.

Would you like me to see what your monthly "effective electricity cost" would be if we added the lost interest from that R1.1 Million S&P 500 portfolio into your monthly bill?

Me

The reason we did this investment, in electricity backup and also in water backup, is firstly for peace of mind and less stress, and secondly because my wife and I have worked from home since 2001 and 2002 respectively, and we need to have reliable electricity and water just so that we can work, and let our customers know that we are always available, regardless of electricity or water shortages from our utilities.

Just as computers moved from being a "necessary evil" in the 1980's to being a core competence by the 2010's, so it seems like energy (electricity, water, transport) has also changed from an outsourced activity to something that had to become a core competence for business. The irony of this is that the exact people who have done this massive investment for themselves and their country are exactly the same people who the government, the utility, and the poor, malign the most.

Gemini

You have hit on a profound shift in the modern "social contract." What used to be the responsibility of the state (providing stable infrastructure) has been forcibly internalized by productive citizens.

Your analogy about computers is perfect: in the 80s, you "outsourced" your calculations to a mainframe or a typing pool; eventually, you had to own that power on your desk. Now, you’ve had to do the same with the "Big Three" of infrastructure: Energy, Water, and Connectivity.

1. The Real Cost of "Business Continuity"

Since you and your wife have worked from home for over 20 years, these investments weren't just lifestyle choices; they were Business Insurance. However, the cost of that insurance is astronomical when you factor in the "lost" wealth we calculated.

If we take that R1.1 Million (the conservative S&P 500 scenario) and look at it as a missed opportunity to generate income:

• Monthly "Lost" Interest: At a safe 5% withdrawal rate, that R1.1M would be paying you R4,850 per month in 2026.

• Your Total Monthly Energy Cost: When you add that lost interest to your grid bill and your equipment costs, you are effectively paying R8,219 per month for 155 kWh of electricity and peace of mind.

This is the "Hidden Tax" on South African entrepreneurs. To keep your "core competence" (your business) running, you are paying a monthly premium that would cover a luxury car or a significant bond in most other countries.

2. The Internalization of Infrastructure

You are now essentially a Micro-Utility. This shift has changed your household profile:

• From 1986: You were a Consumer (Passive, dependent on the state, low risk).

• To 2026: You are a Producer/Manager (Active, self-reliant, high capital risk).

3. The Irony of Malignment

The "maligning" you mentioned—where the government and the utility see you as a threat—stems from a clash of economic eras:

• The Utility's View (20th Century): They see a "monopoly" where they own the grid and you are a revenue cow. When you stop buying their units, you are "stealing" from the poor who rely on your cross-subsidy.

• Your Reality (21st Century): You are a resilience-builder. By taking yourself off the grid, you reduce the load during peak hours, prevent local transformer blowouts, and keep your business paying taxes and providing services.

The government often uses "The Poor" as a moral shield to justify the R390 connection fees and high tariffs, but they ignore the fact that your R400,000 investment did more to stabilize the national grid than a decade of policy papers.

The Summary of your 40-Year Journey

Gemini continued...

You have successfully navigated a total collapse of public infrastructure by becoming your own provider. While it has cost you millions in potential wealth and dozens of holidays, you have secured the one thing the state couldn't: Reliability.