We see evidence that firms are being squeezed in producer price inflation, which reached 8.8% in April, its highest level in two years. And we see evidence for higher pass-through in rising core inflation, which has picked up again after a period of stability in 2013. Our conclusion is that pass-through has risen, pushing inflation above the target.
This effect cannot be expected to abate just because the rand has recovered some lost ground. If the currency begins to trade in a stable band well above its old levels, stability will not necessarily moderate pass-through; rather, it could convince firms to price in the new normal level.