Reconsidering the role of food prices in South African headline inflation

ABSTRACT

The conventional wisdom is that food price shocks are temporary and hence do not usually warrant specific attention in policy formulation. However, more recently, empirical evidence has shown that food price shocks are persistent and have a strong bearing on inflation outcomes. This paper shows that this is indeed the case for South Africa. South African food prices are volatile and the price shocks are persistent. Food inflation is an important determinant of underlying inflationary pressures in the South African economy. Thus, policy should give particular attention to food price movements if inflation is to be kept in check.

Keywords:

• inflation
• monetary policy
• food policy

JEL CLASSIFICATION:

• E31
• E52
• Q18