Introducing a new measure of inflation pressure for South Africa

Cleaver, Cynan and Guest, Oliver and Steenkamp, Daan (2025): Introducing a new measure of inflation pressure for South Africa.

Abstract

Inflation dispersion affects the extent to which inflation harms welfare. As a result, inflation dispersion bears on the optimal inflation target and assessment of the appropriate stance of policy at any particular point in time. In this policy brief, we propose a new measure of inflation dispersion for South Africa, drawing on hundreds of goods and services categories to summarise inflation pressure in South Africa. We show that inflation dispersion describes divergences in inflation from the inflation target. Our analysis suggests that a lower average inflation level may not automatically imply lower inflation dispersion in South Africa, making it harder to anchor inflation expectations at a lower inflation target. This means that reforms to address persistently high administered price inflation and monetary policy communication focused on what policy must do to address inertial price and wage settings are particularly important.

• Item Type: MPRA Paper
• Language: English
• Keywords: CPI dispersion, underlying inflation
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation: Models and Applications; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies

References

Botha, B., Burger, R., Kotze, K., Rankin, N., and Steenkamp, D. (2023). Big data forecasting of south african inflation. Empirical Economics, 65(1):149–188.

Codera Analytics (2025). Econdata. https://econdata.co.za/.

Horn, A. J., Martin, L., Pretorius, J. H., and Steenkamp, D. (2025). Gaps in the south african inflation targeting debate. Technical report, Codera Analytics Policy Brief.

Joel, C. and Hollander, H. (2025). Trend inflation and the costs of price dispersion in a fiscal dsge model. Technical report.

Sheremirov, V. (2020). Price dispersion and inflation: New facts and theoretical implications. Journal of Monetary Economics, 114:59–70.