Inflation and Inflation Expectations in<scp>S</scp>outh<scp>A</scp>frica: an Attempt at Explanation

Abstract

Abstract This paper examines the relationship between inflation and inflation expectations in S outh A frica. We use inflation expectations derived from the quarterly surveys conducted by the Bureau of Economic Research from 2001Q1 to 2011Q4 . Using these data, we estimate the model assuming that private sector expectations are a linear function of the inflation target and lagged inflation. The results indicate that economic agents' expectations largely depend on lagged inflation. This suggests that the S outh A frican Reserve Bank ( SARB ) has not been successful in anchoring expectations of the private sector since the adoption of the inflation targeting ( IT ) regime in 2000. We also find evidence indicating that the SARB 's implicit inflation target lies above the upper bound of the official IT band. Finally, it appears that the SARB has been more concerned about output stabilisation than inflation stabilisation.