These risks include the uncertain trend in wage settlements, domestic demand conditions, and developments with respect to administered prices. Perhaps a more immediate threat is that posed by developments in international oil markets. Since the adoption of inflation targeting in South Africa, the economy has been hit by a number of shocks including food price shocks, exchange rate shocks and oil price shocks.
Whilst the general policy prescription is to respond only to the second-round effects of such shocks, the challenge for monetary policy is to recognise when the impacts are becoming more generalised, and to act at the appropriate time to avoid undermining the integrity of the inflation targeting framework. Thank you. BIS Review 28/2004  5