inflation & inflation targeting by dr azar jammine director & chief economist, econometrix...
TRANSCRIPT
![Page 1: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/1.jpg)
INFLATION & INFLATION TARGETING
by Dr Azar Jammine
Director & Chief Economist, Econometrix (Pty) Ltd
Presented to
Parliamentary Sub-CommitteeParliamentary Sub-Committeeon Financeon Finance
![Page 2: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/2.jpg)
0
2
4
6
8
10
12
GR
OW
TH
(%
)
98 99 00 01 02
INFLATION : OVERALL vs CORE vs CPIX
OVERALL
CORE
CPIX
![Page 3: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/3.jpg)
50
60
70
80
90
100
110
BA
SE 1
995=
100
95 96 97 98 99 00 01 02
REAL EFFECTIVE EXCHANGE RATE
![Page 4: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/4.jpg)
5
10
15
20
25
30
35
$/B
AR
RE
L
96 97 98 99 00 01 02
SPOT CRUDE OIL PRICE :$ PER BARREL
![Page 5: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/5.jpg)
50
100
150
200
250
300
Ran
d/B
arr
el
99 00 01 02
SPOT CRUDE OIL PRICE :RAND PER BARREL
![Page 6: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/6.jpg)
200
250
300
350
400
450
c/l
99 00 01 02
PETROL PRICE : 93 OCTANCE AT THE REEF
![Page 7: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/7.jpg)
-10
0
10
20
30
40
%
99 00 01 02
GROWTH IN PUMP PRICE PETROL93 OCTANE AT THE REEF
![Page 8: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/8.jpg)
4
5
6
7
8
9
10
11
GR
OW
TH
(%
)
98 99 00 01 02
CPIX INFLATION RATEvs UNDERLYING INFLATION RATE
CPIX
UNDERLYING (overallexcluding food, housing +running costs)
![Page 9: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/9.jpg)
0 2 4 6 8
10 12 14 16 18 20
GR
OW
TH
(%
)
97 98 99 00 01 02
INFLATIONOVERALL VS FOOD
FOOD
OVERALL
![Page 10: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/10.jpg)
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
(M-O
-M %
)
98 99 00 01 02
CPI FOOD INFLATIONMONTH-ON-MONTH CHANGE
![Page 11: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/11.jpg)
50
60
70
80
90
100
110
120
IND
EX
1995=
100
95 96 97 98 99 00 01 02
ECONOMIST COMMODITY PRICE INDEX :FOOD $ TERMS
![Page 12: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/12.jpg)
-1.0
0.0
1.0
2.0
3.0
4.0
Mo
nth
-on
-Mo
nth
(%
)
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
Mo
nth
-on
-Mo
nth
(%
)
98 99 00 01 02
PPI FOOD INFLATION vs ECONOMISTCOMMODTY PRICE INDEX FOOD ($)
PPI -ManufacturingFood
Economist Commodity PriceIndex : Food
![Page 13: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/13.jpg)
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
Mo
nth
-on
-Mo
nth
(%
)
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
Mo
nth
-on
-Mo
nth
(%
)
98 99 00 01 02
PPI FOOD INFLATION vs ECONOMISTCOMMODTY PRICE INDEX FOOD ($)
PPI - AgricultureFood
Economist Commodity PriceIndex : Food
![Page 14: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/14.jpg)
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Mo
nth
-on
-Mo
nth
(%
)
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
Mo
nth
-on
-Mo
nth
(%
)
98 99 00 01 02
CPI FOOD INFLATION vs ECONOMISTCOMMODTY PRICE INDEX FOOD ($)
CPI - Food
Economist Commodity PriceIndex : Food
![Page 15: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/15.jpg)
-5
0
5
10
15
20
25
30 G
RO
WTH
(%
)
97 98 99 00 01 02CPI : food PPI : agriculture PPI : manufacturing
FOOD INFLATION
![Page 16: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/16.jpg)
-5
0
5
10
15
20
25
30
35 G
RO
WTH
(%
)
90 91 92 93 94 95 96 97 98 99 000102
FOOD INFLATION
PPI -MANUFACTURING
CPI - FOOD
![Page 17: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/17.jpg)
-15
-10
-5
0
5
10
15
20
GR
OW
TH
(%
)
94 95 96 97 98 99 00 01 02
CONSUMER INFLATIONOVERALL VS HOUSING
HOUSING
OVERALL
![Page 18: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/18.jpg)
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
(M-O
-M %
)
98 99 00 01 02
CPI HOUSING INFLATIONMONTH-ON-MONTH CHANGE
![Page 19: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/19.jpg)
0
2
4
6
8
10
12
14
16
GR
OW
TH
(%
)
97 98 99 00 01 02
INFLATION : CONSUMER VSPRODUCER
PRODUCER
CONSUMER
![Page 20: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/20.jpg)
2
4
6
8
10
12
14
GR
OW
TH
(%
)
98 99 00 01 02
PPI (excl other minerals & petroleum&food) vs CPI UNDERLYING INFLATION RATE
PPI excluding other mineralsand products of petroleumand coal and food)
CPI UNDERLYING (overallexcluding food, housing +running costs)
![Page 21: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/21.jpg)
0
0.5
1
1.5
2
2.5
3
3.5
RA
TIO
%
91 92 93 94 95 96 97 98 99 00 01 02
UNDERLYING CPI / PPI RATIO
CPI - excluding food, housing & vehicle running costs
PPI - excluding other minerals, petroleum & food
![Page 22: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/22.jpg)
2
4
6
8
10
12
GR
OW
TH
(%
)
98 99 00 01 02
INFLATION : RETAIL vs CPIX
CPIX
RETAIL
![Page 23: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/23.jpg)
5
6
7
8
9
10
11
GR
OW
TH
(%
)
98 99 00 01 02
INFLATION : SERVICES vs CPIX
SERVICES CPIX
![Page 24: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/24.jpg)
CONTRIBUTORS TO INCREASED INFLATION 2002
CPI Inflation:-December 2001 4.6%August 2002 11.6%
Increase 7.0%:- of which % Contribution
Food 1.7 24Housing 3.6 51
Interest 2.1 30Other 1.5 21
Petrol 0.5 7Other 1.2 18
7.0 100
![Page 25: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/25.jpg)
95
105
115
125
IND
EX
(2001=
100)
2001 2002
Education Medical Petrol
Food Housing Communication
CPI : OVERALL vs MEDICAL CARE vsEDUCATION vs DOMESTIC vs PETROL
![Page 26: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/26.jpg)
4
6
8
10
12
14
16
18
20
22
GR
OW
TH
%
94 95 96 97 98 99 00 01 02
M3 MONEY SUPPLY GROWTH VS GROWTHIN PRIVATE CREDIT
PRIVATECREDIT
M3 MONEY GROWTH
M3 TARGETRANGES
![Page 27: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/27.jpg)
4
6
8
10
12
14
16
18
20
22
M3 M
ON
EY
%
0
2
4
6
8
10
12
INF
LA
TIO
N %
94 95 96 97 98 99 00010203
M3 MONEY SUPPLY GROWTH LAGGED12 MONTHS VS INFLATION
INFLATION
M3 MONEY GROWTH
![Page 28: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/28.jpg)
4
6
8
10
12
14
16
18
20
22
M3 M
ON
EY
%
0
2
4
6
8
10
12
INF
LA
TIO
N %
94 95 96 97 98 99 00010203
M3 MONEY SUPPLY GROWTH LAGGED12 MONTHS VS INFLATION
INFLATION
M3 MONEY GROWTH
![Page 29: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/29.jpg)
-2
0
2
4
6
8
10
12
14
16
% G
RO
WTH
94 95 96 97 98 99 00 01 02
UNIT LABOUR COST AT CURRENT PRICESVS INFLATION
UNIT LABOUR COST
INFLATION
![Page 30: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/30.jpg)
-2
0
2
4
6
8
% G
RO
WTH
90 91 92 93 94 95 96 97 98 99 000102
GROWTH IN LABOUR PRODUCTIVITY
![Page 31: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/31.jpg)
0
2
4
6
8
10
12
%
97 98 99 00 01 02 03 04
FORECAST: CONSUMER INFLATION OVERALLvs CPI EXCLUDING INTEREST RATE
CPI INFLATION
CPI EXCLUDINGINTEREST RATE
Inflation Targets
![Page 32: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/32.jpg)
INFLATION RATE FORECASTS
2001 2002 2003 2004
CPI Inflation (%) 5.7 9.4 7.8 5.2
CPIX Inflation (%) 6.6 9.5 7.0 5.4
PPI Inflation (%) 8.5 14.2 8.1 5.8
![Page 33: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/33.jpg)
EMERGING MARKETSREAL MONEY MARKETINTEREST RATES(14/09/2002)
ARGENTINA 11.3
BRAZIL 10.4
POLAND 6.9
RUSSIA 5.8
HUNGARY 5.2
HONG KONG 5.2
EGYPT 4.4
INDONESIA 4.1
PHILIPPINES 4.0
SOUTH AFRICA - Using Core 2.7
CZECH REPUBLIC 2.4
SOUTH KOREA 2.4
TAIWAN 2.4
COLOMBIA 1.9
TURKEY 1.8
INDIA 1.8
SOUTH AFRICA - Using CPIX 1.8
THAILAND 1.7
MEXICO 1.6
SINGAPORE 1.5
MALAYSIA 1.1
SOUTH AFRICA - Using CPI 1.1
CHILE 0.3
ISRAEL -0.5
VENEZUELA -4.0
![Page 34: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/34.jpg)
-15
-10
-5
0
5
10
15
20
%
80 82 84 86 88 90 92 94 96 98 0002
REAL PRIME RATE(ADJUSTED USING CORE INFLATION)
![Page 35: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/35.jpg)
5
10
15
20
25
30
35
40 G
RO
WTH
%
80 84 88 92 96 00
PRIVATE CREDIT GROWTH
![Page 36: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/36.jpg)
0
5
10
15
20
25
30 %
80 82 84 86 88 90 92 94 96 98 00 02
SHORT TERM INTEREST RATES
3 MONTH NCD
PRIME OVERDRAFTRATE
![Page 37: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/37.jpg)
-6
-4
-2
0
2
4
6
8
10 G
RO
WTH
(%
)
61 65 70 75 80 85 90 95 00
REAL GROSS DOMESTIC PRODUCT
![Page 38: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/38.jpg)
4
6
8
10
12
14
16
GR
OW
TH
(%
)
90 91 92 93 94 95 96 97 98 99 0001
CONSUMER PRICE INFLATIONSOUTH AFRICA
![Page 39: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/39.jpg)
OPTIONS AVAILABLE ON INFLATION TARGETING
Abandon Inflation Targeting
Raise Target
Change Inflation Measure to Target (from CPIX to
Underlying {i.e. excl. food, housing & vehicle running
costs}?)
Invoke Escape Clause
Miss the Target
![Page 40: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/40.jpg)
ABANDON INFLATION TARGETING
Advantages No longer bound to fight inflation vigorously, thereby harming short-
term growth Critics of inflation-targeting placated
Disadvantages Government and Reserve Bank lose credibility in fight against
inflation Risk of Rand coming under pressure with even worse inflationary
consequences Interest rates might have to be raised eventually to even higher levels Return to boom/bust cycles
![Page 41: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/41.jpg)
RAISING TARGET
Advantages
Meeting targets no longer a pipedream, thereby enhancing
credibility of process
Simultaneous retention of target maintains vision of
determination to fight inflation
Disadvantages
Perception of fairweather flexibility to meet the prevailing
situation may detract from perception of commitment to targets
Small risk of decline in currency with concomitant inflation and
interest rates consequences
![Page 42: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/42.jpg)
CHANGE OF TARGET MEASURE FROM CPIX
Advantages
Exclusion of food & fuel would exclude volatility caused by factors
other than economic policies
Exclusion of food, fuel & housing would render CPIX target range
of 3 to 6% achievable and credible
Disadvantages
Relatively ineffective in combating inflation more generally
because of too many exclusions
Perception that government acting to please itself in fairweather
fashion
![Page 43: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/43.jpg)
INVOKE ESCAPE CLAUSE
Advantages
Perception of this being appropriate given magnitude of currency
depreciation and commodity price increases
Disadvantages
Perception of lack of commitment to fighting inflation when the
going gets tough
Risk of Rand depreciation with concomitant inflation and interest
rate consequences
![Page 44: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/44.jpg)
DO NOTHING
Advantages
Releases pressure to raise interest rates further because of total loss
of credibility
If inflation does fall sharply, government will have got away without
undue harm
South Africa would not be only country to miss target
Disadvantages
Inflation targeting seen to be farcical, leading to loss of confidence in
commitment to fight inflation
Risk of Rand depreciation with concomitant inflation and interest
rate increased
![Page 45: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/45.jpg)
RECOMMENDATION
Retain inflation targets but increase ranges by 1%
Change to targeting underlying inflation rather than CPIX
Keep real interest rates positive at all times
![Page 46: INFLATION & INFLATION TARGETING by Dr Azar Jammine Director & Chief Economist, Econometrix (Pty) Ltd Presented to Parliamentary Sub-Committee on Finance](https://reader030.vdocuments.us/reader030/viewer/2022032611/56649cf95503460f949ca240/html5/thumbnails/46.jpg)