What inflation adds by way of higher prices, revenues or incomes, weaker exchange rates can be expected to reduce their value abroad. If the move in exchange rates was equal to the difference in inflation rates between SA and its foreign trading partners, the fields on which we work or play across the globe would be level.

Clearly economic life does not work that way. Our rand has almost always bought us more at home than it does abroad when exchanged at the prevailing exchange rates. The difference between what our rand can buy at home or abroad can be calculated as the difference between the market rate of exchange and its purchasing power equivalent, as determined by the differences in inflation rates.

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