Links or disconnect: a first consideration of inflation expectations and inflation credibility, with specific reference to South Africa

Abstract

This paper compares international and domestic inflation expectations and inflation credibility, and hypothesises about a possible link or disconnect between inflation expectations and inflation credibility among South Africans. No similar tests have previously been performed using South African data, and there is also a general lack of domestic and international literature on any such possible link or disconnect. While research shows that inflation expectations are taken into account by all countries targeting inflation, inflation credibility is very seldom considered. Although the hypothesis is confirmed in certain instances, it is refuted by a disconnect between the inflation expectations and inflation credibility of male and female respondents in South Africa, which cannot be explained by available data.

A comparison of inflation expectations and inflation credibility in South Africa: results from survey data

“…While Fracasso et al (2003) and the Bank of Iceland (2003) compared the monetary policy reports of twenty central banks in terms of clarity of assumptions, inflation forecasts, monetary policy decision-making process, quality of information and quantity of information, they did not assess the methodology used to obtain inflation forecasts or expectations. Likewise, Blinder et al (2008) and Leeper (2003) Rossouw, 2008;or Rossouw et al, 2009 for discussions of the first of these surveys). The international experience of differences in the credibility of inflation figures between male and female respondents was confirmed by the South African surveys (see for instance Rossouw, 2008;or Rossouw et al, 2009).…”

“…Likewise, Blinder et al (2008) and Leeper (2003) Rossouw, 2008;or Rossouw et al, 2009 for discussions of the first of these surveys). The international experience of differences in the credibility of inflation figures between male and female respondents was confirmed by the South African surveys (see for instance Rossouw, 2008;or Rossouw et al, 2009). These surveys are discussed and compared to South African inflation expectations surveys in the next section of this paper.…”

“…The results from the 2008 inflation expectations survey can be compared to the 2006 results as calculated by Rossouw et al (2009), which is the first South African study against which results can be benchmarked. The variables included in the multinomial analysis were the following:…”

“…An earlier paper (Rossouw et al, 2009) assessed South African inflation expectation and inflation credibility surveys undertaken among households in 2006 and tested a hypothesis that inflation expectations and inflation credibility do not vary between gender, population group, age and other characteristics. The main finding was that female respondents recorded a lower degree of acceptance of the credibility of historic inflation figures than male respondents, but that this difference did not feed into inflation expectations.…”

An international comparison of inflation credibility surveys

“…The measurement of inflation expectations, which are the expected future rates of change in the price level, is also reported in the literature (see, for instance, Brachinger, 2005;or Rossouw, Padayachee & Bosch, 2009a, for an analysis of inflation expectations). All countries targeting inflation consider inflation expectations, but only three of these countries consider the credibility of inflation figures.…”