Towards a formal link between inflation perceptions and inflation expectations in South Africa

Abstract

This paper reports the finding of a survey of inflation perceptions and inflation expectations in South Africa undertaken in 2014. This survey posed questions on perceptions of past inflation (historic inflation) and expectations of future inflation to the same respondents and determined linkages between historic views and future expectations of each respondent. The analysis of the survey data shows that inflation expectations are anchored in inflation perceptions. This research aligns South Africa with other countries and jurisdictions where such surveys are undertaken. This paper shows conclusively, for the first time in South Africa, that there is a feed through from inflation perception to inflation expectations. Therefore, inflation perceptions play a crucial role in the formulation of inflation expectations in South Africa. These results suggest that policy makers are not just charged with containing inflation expectations, but they should also be aware that the confidence in official statistics, as well as the confidence in the SA Reserve Bank and government, impacts inflation perceptions which directly feed into inflation expectations.

Keywords: Inflation perceptions; Inflation expectations; South Africa; Monetary policy