Firm-Level Inflationary Expectations in South Africa: The Role of Oil Supply News Shocks

Petre Caraiani () and Rangan Gupta ()
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Petre Caraiani: Institute for Economic Forecasting, Romanian Academy, Romania, Bucharest University of Economic Studies, Romania
Rangan Gupta: Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa

No 202615, Working Papers from University of Pretoria, Department of Economics

Abstract: Using a unique firm-level survey from the Bureau of Economic Research in South Africa covering a panel of 1,444 South African firms surveyed at quarterly frequency between 2000 and 2023, we examine how global oil news shocks shape firms' inflation and wage expectations. We identify exogenous oil supply news shocks following Kanzig (2021) and embed them in a fixed-effects panel regression that controls for domestic macroeconomic and financial conditions through four estimated factors. A one-quarter-lagged oil news shock has a positive and statistically significant effect on firm-level inflation expectations (0.14 percentage points at the one-year horizon, 0.09 at two years) and wage expectations (0.13 percentage points). The responses are robust to alternative shock identifications and sub-sample estimations. Sectoral analysis reveals heterogeneity, more substantial for wage, that we interpret in light of two channels documented in the literature -- cost pass-through and salience. The findings have direct implications for inflation-targeting policy in emerging economies, particularly in light of South Africa's ongoing debate over a lower target.

Keywords: oil shocks; firm-level expectations; inflation; wages (search for similar items in EconPapers)
JEL-codes: C67 E31 E32 Q43 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2026-05
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