Central Bank Introduces New Tool To Support Monetary Policy Decisions

The South African Reserve Bank (SARB) announced a new tool to track price trends and support monetary policy decisions.

The new measure is called supercore inflation to track long-term inflation trends. This information comes from an economic note written by Samantha de Kock, MG Ferreira, Mpho Rapapali, Witness Simbanegavi and Mokgabiso Tshenkeng.

The note explains that supercore inflation will add to the central bank's existing indicators for monitoring underlying price changes.

"In this economic note we construct a new measure of trend inflation for South Africa, named supercore inflation, to broaden the suite of indicators used by the Sarb to monitor underlying price developments," the economic note said, IOL reported.

The supercore basket includes components that react to overall economic conditions as measured by the output gap. The authors said using a wider range of measures to assess price pressures helps improve accuracy and confidence in understanding persistent inflation trends, given the uncertainty around any single measure.

"Our findings reveal that demand-driven inflationary pressures, as measured by supercore inflation, are presently balanced, with inflation outcomes hovering around the target midpoint over the past year," the note said.

This is important for the SARB when creating and adjusting monetary policy. The authors mentioned that supercore inflation helps policymakers by distinguishing between temporary inflation pressures and those that might be more lasting.

Supercore inflation will be used along with headline inflation and core inflation, which excludes prices for food, non-alcoholic beverages, fuel and energy.

Last month, SARB Governor Lesetja Kganyago said the agency expects core inflation to average 4.6% this year and said the world is facing new economic challenges despite current issues yet to be resolved.

Kganyago noted that technological advances bring both risks to cybersecurity and the potential for significant boosts in global productivity. The domestic economy is expected to grow by 1.1% this year, rising to 1.7% by 2026, as both household spending and investment start to strengthen.

Despite South Africa's slow economic growth, the country has recovered the 2.2 million jobs lost during the pandemic's peak.