South Africa’s 3% inflation target is expected to withstand a range of economic shocks, in an environment where expectations are ‘better anchored and more forward-looking’, according to a new study by the South African Reserve Bank (SARB).
In the absence of major shocks, there is a 78% probability that inflation will remain within the 2% to 4% tolerance band set by the SARB, according to authors Theo Janse van Rensburg, Jeffrey Rakgalakane, and Rudi Steinbach, in an economic note published on Tuesday, 8 September.
In November, South Africa formally reduced its inflation target to 3%, with a tolerance margin of one percentage point, replacing the 3% to 6% range that had been in place for 25 years. Since 2017, the central bank had used the midpoint of that range — 4.5% — as its reference level.
Since the outbreak of war with Iran on 28 February, the country has faced mounting price pressures. Restrictions on traffic through the Strait of Hormuz, one of the world’s main supply routes, have pushed up oil and fertiliser prices, contributing to a rise in inflation from 3% to 4.5%.
Against this backdrop, the central bank raised interest rates by 25 basis points in May, to 7%, before pausing its tightening cycle in July after revising inflation forecasts downward and with the aim of supporting economic growth.
Last week, SARB Governor Lesetja Kganyago stated that there was room for authorities to continue adopting a cautious approach to interest rates amid a backdrop of multiple shocks. The new study supports that assessment.
According to the authors, a typical shock to the main drivers of inflation — including food, oil, and electricity prices, the rand, and inflation expectations — would cause inflation to deviate by less than one percentage point from the 3% target over the course of a year.
Among the key factors analysed, oil represents the greatest risk to inflation. A shock of close to 40% in the oil price, lasting three quarters, would add an average of 0.87 percentage points to inflation during the first year, with the impact peaking at slightly above one percentage point.
Even so, the study estimates that inflation expectations would increase by only 0.15 percentage points. Even in a scenario where multiple shocks occur simultaneously, the authors put the probability of inflation remaining between 2% and 4% at 62%.
To push inflation above one percentage point for a full year in a scenario that would not be considered temporary, the rand would need to depreciate by around 14%, while the oil price would need to rise by approximately 46%, according to the study. In the same scenario, food prices would need to increase by 4.8%, unit labour costs by 5.1%, electricity prices by 17.1%, and other administered prices by 9.4%.
The authors attribute these results to inflation expectations being more forward-looking, particularly since the central bank adopted a 4.5% inflation target in mid-2017. ‘These results reflect greater credibility of monetary policy, which is a good sign for meeting the 3% inflation target,’ the study concludes.
‘It is important to note that when lower inflation is accompanied by lower volatility, as has historically been the case, responses to shocks tend to be more moderate,’ the authors stated.
Source: Diário Económico
Original article: https://www.diarioeconomico.co.mz/2026/09/10/mundo/africa/africa-do-sul-estudo-do-banco-central-considera-robusta-meta-de-inflacao-de-3/
