Twenty-five years of inflation targeting in South Africa: Going from 6% to 3%

Philippe Burger

No wp-2025-42, WIDER Working Paper Series from World Institute for Development Economic Research (UNU-WIDER)

Abstract: This paper proposes that the South African Reserve Bank should pursue a 3% inflation target, instead of the current 4.5% midpoint of a 3%-to-6% target range. Doing so may also result in lower inflation volatility, thereby reducing nominal exchange rate risk for investment and trade, and may thus support economic growth. Using a two-regime Markov-switching model, the analysis shows that since the global financial crisis, periods of higher inflation volatility are much shorter. Thus, inflation is relatively better anchored since the global financial crisis.

Keywords: Inflation targeting; Sacrifice ratio; Budget deficits; Markov switching; South Africa; Prices (search for similar items in EconPapers)
Date: 2025
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