Gaps in the South African Inflation Targeting Debate

Horn, Aidan J. and Martin, Lisa and Pretorius, Jan H. and Steenkamp, Daan (2025): Gaps in the South African Inflation Targeting Debate. Published in: Codera Policy Paper No. 1

Abstract

This paper presents a primer on assessing South Africa’s optimal inflation target and the implications of the economy’s structural characteristics for the conduct of monetary policy. The paper assesses what would need to be done to lower the inflation target without imposing a disproportionate cost on the economy. The main finding is that there needs to be supportive fiscal policy aimed at reducing South Africa’s debt burden and government policies that reduce inflation pressures. This will, in turn, require a social compact between government, the central bank, state owned enterprises, relevant regulators, and labour unions to galvanise support for structural reforms that reduce government-related inflation and align public sector wage demands to productivity growth. Such a compact is unlikely without clear articulation of the benefits of a lower target and what is required to counterbalance the short-term costs of reducing inflation.

• Item Type: MPRA Paper
• Language: English
• Keywords: inflation targeting, optimal inflation target, target reduction
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E42 - Monetary Systems ; Standards ; Regimes ; Government and the Monetary System ; Payment Systems; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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