Inflation Dynamics in South Africa

The Role of Thresholds, Exchange Rate Pass-through and Inflation Expectations on Policy Trade-offs

This book offers a comprehensive empirical analysis of South African inflation dynamics, using a variety of techniques including counterfactual analysis. The authors elaborate the roles in inflation of thresholds, nonlinearities and asymmetries introduced by economic conditions such as the size of exchange rate changes and volatility, GDP growth, inflation, output gap, credit growth, sovereign spreads and fiscal policy, providing new policy evidence on the impact of these. Ndou and Gumata apply techniques to determine the prevalence of updating inflation expectations, and reconsider the propagation effects of a number of inflation risk factors. Asking to what extent the evidence points to a need to enforce price stability and the anchoring of inflation expectation, the book fills existing gaps in South African Policy, and maintains a clear argument that price stability is consistent with the 3 to 6 per cent inflation target range, and that threshold application should form an important aspect of policy analysis in periods of macroeconomic uncertainty. As such, the book serves as an excellent reference text for academic and policy discussions alike.