South Africa’s central bank has a new tool that will monitor underlying price developments that will help support monetary policy decision-making.
This is according to an economic note from the South African Reserve Bank (Sarb), which has revealed that the central bank has constructed a new measure of trend inflation called supercore inflation.
The economic note was authored by Samantha de Kock, MG Ferreira, Mpho Rapapali, Witness Simbanegavi and Mokgabiso Tshenkeng.
According to the economic note, supercore inflation will expand the suite of the indicators used by the central bank to track underlying price changes.
“In this economic note we construct a new measure of trend inflation for South Africa, named supercore inflation, to broaden the suite of indicators used by the Sarb to monitor underlying price developments,” the economic note said.
The supercore basket comprises of components that are responsive to general economic conditions as measured by the output gap.
Widening the suite of measures to assess underlying price pressures improves robustness and confidence of correctly pinning down the persistent inflationary dynamics given the uncertainty around any single such measure.
This is crucial for the formulation and calibration of monetary policy by the Sarb.
According to the authors, supercore inflation offers important insights to policymakers, particularly in differentiating between inflationary pressures that are likely to be transient and those signalling more persistent trends.
Supercore inflation will be used alongside headline as well as core inflation, which will strip out food and non-alcoholic beverages (NAB), fuel and energy prices.
IOL Business