Yet, because this reduced pass-through, which incidentally is not unique to South Africa, is not yet fully understood, we cannot become complacent and assume that it has become a permanent feature of our economic landscape. The pass-through has not been constant over time; just as it fell, it could rise again. The role of inflation expectations therefore becomes paramount.
Historically – in part because of the major structural changes the economy went through in the last 50 years and in part because of a long period of high and volatile inflation (from the 1970s to the 1990s) – price expectations in South Africa appeared to be adaptive, as reflected in the behaviour of price and wage setters, be they businesses or organised labour.