Measuring Core Inflation in South Africa |
| |
Authors: | Stan du Plessis Gideon du Rand Kevin Kotzé |
| |
Institution: | 1. Department of EconomicsUniversity of Stellenbosch;2. School of Economics, University of Cape Town, Rondebosch, South Africa |
| |
Abstract: | Measures of core inflation convey critical information about an economy. They have a direct effect on the policymaking process, particularly in inflation‐targeting countries, and are utilised in forecasting and modelling exercises. In South Africa, the price indices on which inflation is based have been subject to important structural breaks following changes to the underlying basket of goods and the methodology for constructing price indices. This paper seeks to identify a consistent measure of core inflation for South Africa using trimmed means estimates, measures that exclude changes in food and energy prices, dynamic factor models, and wavelet decompositions. After considering the forecasting ability of these measures, which provide an indication of expected second‐round inflationary effects, traditional in‐sample criteria were used for further comparative purposes. The results suggest that wavelet decompositions provide a useful measure of this critical variable. |
| |
Keywords: | C43 E31 E52 Wavelets trimmed means dynamic factor models forecasting core inflation |
|
|