Inflationary pressures are currently underpinned by supply-side shocks, mainly related to exchange rate and food price movements. Exchange rate depreciation, or rand weakness, is an issue that most of us are innately aware of. It affects every South African through a number of direct and indirect channels.
Consumers immediately feel the effects of depreciation at the petrol pumps and, later, through ‘first-round’ impacts on imported goods. However, as the SARB’s Monetary Policy Committee (MPC) has stated on numerous occasions, flexible inflation targeting allows monetary policy to see through these so-called ‘first-round’ inflationary effects.