Rand depreciation is a major factor underpinning inflationary pressures in so far as they increase the domestic prices of imported goods. Commodity price movements also lead to a negative demand shock, which serves to offset inflationary pressures somewhat. Recent indications suggest, however, that the transmission of import prices to domestic prices has been more muted in South Africa and other emerging markets.
In our case, this could be explained by a lack of demand pressures, represented by a negative output gap, which is forecast at –1.8 per cent of GDP for 2015. 14 However, it is unclear as to whether this trend will continue, or if the full impact of the pass-through is merely delayed, and policy makers must thus remain vigilant.