Inflation Mechanisms, Expectations and Monetary Policy
4 Pages Posted: 3 Dec 2016
Date Written: November 2016
Abstract
This note identifies supply factors, particularly the exchange rate, as key drivers of inflation in South Africa. Demand factors play a negligible role, with a flat Phillips curve apparent since the inception of the country’s inflation targeting regime. The Phillips curve flattened further with the Global Financial Crisis, which suggests that inflation is now even less responsive to demand factors. In addition, the note discusses the adaptive nature of the inflation expectations of price setters, which have eventually become well anchored towards the end of the sample, albeit at the upper bound of the official target band.
Full Publication: Inflation Mechanisms, Expectations and Monetary Policy
Keywords: Inflation, exchange rate pass-through, inflation expectations, Phillips curve
JEL Classification: E31, E52, E58
Suggested Citation: Suggested Citation