South Africa's inflation: Monetary or fiscal

Guangling Liu () and Christopher Solomon ()
Authors registered in the RePEc Author Service: Elsabe Loots

No 261, ERSA Working Paper Series from Economic Research Southern Africa

Abstract: Conventional macroeconomics has viewed inflation as a monetary phenomenon through the Quantity Theory of Money. Ever-increasing sovereign debt globally has caused concern among economists. These concerns follow not from the ability of governments to repay their debt, but rather from the impact of sizeable debt portfolios on price levels. The Fiscal Theory of the Price Level epitomizes these concerns, contrasting the traditional view on inflation by arguing that it is a fiscal phenomenon caused by debt issuance without real backing. This study uses this fiscal inflation theory to analyse South Africa's inflation through a fiscal-monetary VAR model, finding that South Africa's inflation dynamics are accurately described by both monetary and fiscal factors, but more so by the latter.

Keywords: Monetary and fiscal interactions; Fiscal theory of the price level; Inflation (search for similar items in EconPapers)
JEL-codes: E31 E4 E51 E58 E61 (search for similar items in EconPapers)
Date: 2026-03
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Published in ERSA Working Paper Series, March 2026

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