Inflation and Monetary Policy: What South African Newspapers Report in an Era of Policy Transparency

Abstract:

Inflation is a monetary policy outcome, but in the short to medium term, price and wage decisions are co-determined by the public and private sectors. Many central banks have adopted transparency as a strategic policy approach, whereby communication of monetary policy goals is used as a public anchor. While the central bank’s strategy involves carefully crafted, deliberately simplified messages, most of the public tends to access inflation-related information through the media. In this article, we examine South African newspaper articles to identify how inflation is presented in the media and the role of the media, through this presentation, in the process of shaping public opinion around inflation expectations. We do this in two ways. First, we examine how inflation is presented in the media and then we identify the various actors presented in the media, their positions on inflation, and how these relate to each other. The systematic analysis of the media’s presentation of inflation allows us to identify some challenges to the central bank’s communication strategy.

Keywords:

• inflation
• inflation expectation
• South African Reserve Bank
• content configuration analysis
• newspaper
• media

JEL Classification Codes::

• E31
• E52
• E58
• E71
• Z13

Notes

1 In societies where decisions interact dynamically as described above, inflation and inflation expectations have not been successfully stabilised at the low levels pursued by central banks without these authorities committing to some form of nominal anchor or to some institutional arrangement that limits the central bank’s policy discretion in a strategic manner (Walsh 2003).

2 Inflation targeting has become the most durable nominal anchor for monetary policy in the post-War era (Rose 2007). While the local application of this framework differs between countries, the following features are common to most applications: (1) The announcement of an explicit target for inflation over a certain (usually medium) horizon; (2) The absence of alternative nominal anchors; (3) The use of this explicit target in a strategic approach to monetary policy, which includes (a) A forecasting strategy for inflation, the output-gap, and other relevant variables, and (b) A communication strategy that implies substantial transparency for the monetary policy process.

3 Cukierman (2009) points out that the level of transparency with respect to the structure of the economy is hampered by the banks’ limited knowledge about the structure of the economy. Furthermore, central banks’ transparency about the relative weight they place on the output and inflation gaps, as well as the shape of the losses from these two, is constrained by the fact that in practice monetary policy decisions are made by committees, whose members may view this differently. As Swank and Visser (2007), and Siebert (2006) point out, committees of experts face their own challenges as there is pressure either to conform or to free-ride. Moreover, the level of diversity can be affected according to whether the background and training of the committee members differs. Also, see Maier (2010) for empirical evidence.

4 Please note that the quotations in the results section need to be interpreted as individual datapoints, forming part of a large series of such pieces of text from the media articles. Conclusions were not drawn from these illustrative quotations alone. Refer to the appendix for further details about where these individual quotations come from.

5 For example, consumer price inflation and core inflation.

6 For example, inflation basket and inflation data.

7 For example, inflation environment and U.S. inflation.

8 For example, the consumer inflation rate, core inflation rate, personal inflation rate, and CPI annual inflation rate.

9 For example, the inflation trajectory, inflation pressures, and inflation risk.

10 This definition of core inflation does not define inflation. It merely distinguishes it from headline inflation.

11 Please refer to the appendix for further details about how to read the notation used for these references, and details about the sources of these quotations.

12 For example, personal inflation, food price inflation, consumer inflation, car inflation, and household inflation.

13 Because the media is not trying to reconcile these different representations of what inflation is, there is no recognition that inflation is a process. The consequences of inflation expectations are also conspicuously absent from media discourse on inflation and the SARB. Instead we find strikingly different “versions” of the inflation story embedded in the media.

14 These include market watchers, such as investors, strategists, asset managers, economists, market researchers, analysts, and financial advisors from a wide range of local and global private corporations. Also cited are banks, including Investec, the IMF, Nedbank, Old Mutual, Bidvest Bank, and Standard Bank, as well as several research units such as Statistics SA, Econometrix, and the Bureau for Economic Research (BER) at Stellenbosch University. Less prominent are reported positions of various individuals from the business sector, such as presidents, chief executives, and heads of retail, sales, and distribution units of large corporations. Finally, a group of anonymous economists, frequently surveyed by Bloomberg, also comment on inflation in the media. Interestingly, it is never stated who these economists are or whom they represent, and this group can vary from one survey to the next, consisting of between 12 and 30 economists.

15 Inflation targeting was designed to promote transparency in order to hold the central bank accountable to the public in precisely this manner.

16 Many central banks appear to be aware of this. As a result, educational outreach in various forms has emerged as important vehicles increasingly being used to better inform the public. Of course, the aim is also partly in support not only of the principles of transparency but also to maintain public accountability thereby protecting their independence. Examples include the U.S. Federal Reserve, the Bank of Canada, and the Reserve Bank of New Zealand.

Additional information

Notes on contributors

Monique Reid

Monique Reid is Associate Professor in the Department of Economics, University of Stellenbosch, South Africa.

Zinette Bergman

Zinette Bergman, is a researcher in the Department of Social Research and Methodology, University of Basel, Switzerland.

Stan Du Plessis

Stan du Plessis is Professor and Chief Operating Officer of the University of Stellenbosch, South Africa.

Manfred Max Bergman

Manfred Max Bergman is Professor in the Department of Social Research and Methodology, University of Basel, Switzerland.

Pierre Siklos

Pierre Siklos is Professor in the Department of Economics and Balsillie School of International Affairs, Wilfrid Laurier University, Canada. This work was supported by the National Research Foundation in South Africa (grant number 93520). The National Research Foundation had no role in the study design; collection, analysis and interpretation of data; in the writing of the report; or in the decision to submit the article for publication.