SA’s current inflation target of 3% to 6% was introduced in February 2000. At the time, the annual inflation rate was a very modest 2.3%, but it had averaged 7.3% over the preceding five years, spiking to over 10% at times.
This suggested that achieving the inflation target was not going to be easy, and would require a meaningful change in policy implementation.
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Fortunately, since February 2000, SA’s inflation rate has averaged 5.6%. It has been at or inside the inflation target range for almost 75% of the time over the past 15 years.
This is a heartening and important economic success story, especially given SA’s general economic malaise since 2010.
Keeping the inflation rate persistently inside the target range is challenging for a variety of reasons. These include the volatile and relatively weak rand exchange rate; above-inflation wage increases in key economic sectors, including the public sector; poor productivity growth in most industries; sustained large increases in key administered prices (such as the cost of water and electricity); and a rise in import intensity.