Inflation is how fast prices rise. If inflation is 6%, something that cost KES 100 last year costs about KES 106 now.
The real return
The money in your account grows by the interest rate. What it can buy grows by the interest rate minus inflation. That is your real return.
EXAMPLE DATA: you earn 10% a year after tax, and prices rise 6%.
- Your KES 100,000 becomes KES 110,000.
- But what cost KES 100,000 now costs KES 106,000.
- You can buy about 3.8% more than a year ago, not 10% more.
The exact formula is (1 + rate) ÷ (1 + inflation) − 1. Subtracting one from the other is a close shortcut when both are small.
When the real return is negative
If your savings earn less than inflation, the balance goes up but what it buys goes down. Money kept as cash, or in an account paying very little, loses value this way every year.
What to do with it
- Find out the latest inflation figure, published monthly by the Kenya National Bureau of Statistics, and the yearly history on our inflation page.
- Compare it with what you earn after tax on where your shilling earns most.
- The Central Bank raises or lowers its rate partly to keep inflation in its target range: see what the Central Bank Rate is.
Information, not advice.