Selected Issues Papers

Macroeconomic Effects of a Potential Change in South Africa’s Inflation Target: South Africa

By Jana Bricco, Mario Mansilla, Philippe Wingender

March 31, 2025

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Jana Bricco, Mario Mansilla, and Philippe Wingender. "Macroeconomic Effects of a Potential Change in South Africa’s Inflation Target: South Africa", Selected Issues Papers 2025, 025 (2025), accessed May 13, 2025, https://doi.org/10.5089/9798229006385.018

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Summary

South Africa’s inflation-targeting framework has served the country well, playing a key role in reducing inflation since 2000. However, with inflation still above that of key trading partners, questions have arisen whether a potential shift from the current target band (3 to 6 percent) to a lower point target could better support macroeconomic stability over the medium term. This chapter explores the macroeconomic implications of such a shift. While medium run gains result from lower borrowing costs, the modeling analysis points to the critical role of inflation expectations and central bank credibility in minimizing near-term output costs; fiscal-monetary interactions are also important. A review of select case studies highlights the importance of close coordination among policymakers, clear communication, and gradual transitions to support the achievement of lower inflation.

Subject: Fiscal consolidation, Fiscal policy, Inflation, Inflation targeting, Monetary policy, Monetary policy frameworks, Prices

Keywords: Africa, Central Bank Credibility, Effects of a Potential, Fiscal consolidation, Global, Inflation, Inflation expectation, Inflation Expectations, Inflation Targeting, IT framework, Monetary Policy, Monetary policy frameworks, Sacrifice Ratio, South Africa, South Africa's inflation-targeting framework

Publication Details

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