An evaluation of inflation targeting in South Africa.

Abstract

This research was conducted to evaluate the adoption of inflation targeting in South Africa as a strategy to maintain price stability. The research was based on the period prior to inflation targeting and the period of inflation targeting. The comparison was done to determine if the Reserve Bank was on the right track in adopting inflation targeting. The research was conducted to determine if there is any correlation between CPIX inflation and other factors affecting inflation. The factors investigated were: food inflation, transport inflation, housing inflation, exchange rate, Brent crude oil, money supply, and the current account deficit to the GDP. The correlation studies were conducted during the same period and when the factors were lagged up to eight quarters. The correlations were statistically tested at 5% significant level. The results show that the period of inflation targeting has a strong correlation compared to the period prior to inflation targeting, when compared during the same time period and lagged time period.