Inflation Expectations Anchoring Across Different Types of Agents: The Case of South Africa

27 Pages Posted: 22 Aug 2018

See all articles by Ken Miyajima

Ken Miyajima

Bank for International Settlements (BIS) - Monetary and Economic Department

James Yetman

Bank for International Settlements (BIS)

Date Written: August 2018

Abstract

Inflation forecasts are modelled as monotonically diverging from an estimated long-run anchor point, or 'implicit anchor', towards actual inflation as the forecast horizon shortens. Fitting the model with forecasts by analysts, businesses and trade unions for South Africa, we find that inflation expectations have become increasingly strongly anchored. That is, the degree to which the estimated implicit anchor pins down inflation expectations at longer horizons has generally increased. Estimated inflation anchors of analysts lie within the 3-6 percent inflation target range of the central bank. However, the implicit anchors of businesses and trade unions, who are directly involved in the setting of wages and prices that drive the inflation process, have remained above the top end of the official target range. Possible explanations for these phenomena are discussed.

Keywords: Inflation expectations, Central banks and their policies, South Africa, Sub-Saharan Africa, decay function, inflation anchoring, inflation targeting

JEL Classification: E31, E58

Suggested Citation

Miyajima, Ken and Yetman, James, Inflation Expectations Anchoring Across Different Types of Agents: The Case of South Africa (August 2018). IMF Working Paper No. 18/177, Available at SSRN: https://ssrn.com/abstract=3236791

Ken Miyajima (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

James Yetman

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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