South African Inflation Expectations: Sensitivity to Surprises

Stellenbosch Policy Brief No. 03/2010
 
Publication date: 2010
 
Author(s):
[protected email address] (Stellenbosch University)
 
Summary:

How responsive is inflation expectations in South Africa are to unexpected shifts in key macro-economic variables? In theory, transparent and credibile policies pave the way for less aggressive policy adjustments to maintain price stability, since markets should believe that inflationary spikes are transitory. Since market players keep their expectations of long-term inflation at modest levels, they would not adjust their market decisions in a way that adds upward inflationary pressure.The empirical findings for South Africa, compare favourably with those of other countries and this supports the view that inflation targeting is a useful framework for the management of private sector expectations. If it is correctly applied, it improves the predictability of monetary policy, thereby facilitating the anchoring of inflation expectations.

 
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BER Weekly

30 January 2023
The ongoing, and worsening, power crisis in SA was a major theme at the central bank’s (SARB) Monetary Policy Committee (MPC) meeting last week. Besides the 25bps policy rate hike, most attention was focused on the stark downgrade to the SARB’s real GDP growth forecast for the next three years. ...

Read the full issue