South Africa Inflation Target Review to Preserve Price Stability
South Africa’s ongoing review of the central bank’s inflation target of 3% to 6% will be anchored in the principle of preserving price stability, said Deputy Finance Minister David Masondo.
“Our macroeconomic policy intention is to make sure that we’ve got low and stable inflation,” he told investors at an event in London on Friday. “You don’t want prices to be too volatile. You can’t plan in that economic environment.”
South Africa’s annual rate of inflation slowed to 4.4% in August from a post-pandemic peak of 7.8% in 2022, with economists giving the central bank credit for resisting pressure to ease high borrowing costs until prices were brought under control.
The Treasury and South African Reserve Bank staff have for months been doing technical work on the appropriate level of the inflation target, and whether it should be a range or a single point.
Masonda said the discussions have yet to reach a conclusion.
“The jury is not yet out there on where we should be. There’s still a conversation,” he said.
Officials have not said when they will publish any findings, though an upcoming medium term budget review on Oct. 30 could be an opportunity to give an update on their progress.
“Once we have agreed or determined that inflation rate, they will execute it independently,” Masondo said. “The Reserve Bank has done this consistently.”
The central bank currently aims to anchor inflation expectations around the 4.5% midpoint of the target range.
But SARB Governor Lestja Kganyago has since 2021 publicly argued the merits of shifting to a lower single-point goal of and his position has been backed up by academic research, which found lasting benefits from lowering the target after a temporary and modest hit to economic growth.
“Our prices must be affordable, must be competitive, because if they are too high, then our export performance will be badly affected,” Masondo said.
