BER flags economic implications of changing inflation target in South Africa

THE Bureau for Economic Research (BER) has revealed that the South African Reserve Bank (Sarb) may no longer be pursuing an inflation target of below 4.5%, which could have substantial implications for the nation's economy.

- YOGASHEN PILLAY

In a recent analysis, BER indicated a growing consensus among economists that the Sarb's focus has shifted away from the previous benchmark, suggesting a potential move towards a lower target of around 3% over time.

This development follows a year in which South Africa encountered three national budgets, signalling a period of significant economic recalibration.

While the Sarb's inflation target technically remains unchanged, BER remarked that it was evident the central bank was not committed to the 4.5% aim any longer.

“The inflation target shift has big implications for the economy. Our (mid-July) baseline assumes monetary and fiscal policy will remain tight for the foreseeable future. It expects that a shift to a 3% inflation target will occur over time, meaning that real interest rates will stay restrictive with cuts only when inflation expectations settle near this lower target,’ said BER.

BER's analysis suggests that while an optimistic scenario would see the National Treasury adopt this new 3% target promptly, aligning its fiscal policies accordingly could foster stronger backing for the Sarb's disinflation efforts.