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Measuring Core Inflation in South Africa

Author

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  • Stan Plessis
  • Gideon Rand
  • Kevin Kotzé

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.

Suggested Citation

  • Stan Plessis & Gideon Rand & Kevin Kotzé, 2015. "Measuring Core Inflation in South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 83(4), pages 527-548, December.
  • Handle: RePEc:bla:sajeco:v:83:y:2015:i:4:p:527-548
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    File URL: http://hdl.handle.net/10.1111/saje.12090
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    References listed on IDEAS

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    Cited by:

    1. Francis Leni Anguyo & Rangan Gupta & Kevin Kotze, 2017. "Inflation Dynamics in Uganda: A Quantile Regression Approach," School of Economics Macroeconomic Discussion Paper Series 2017-07, School of Economics, University of Cape Town.
    2. Franz Ruch & Stan du Plessis, 2015. "Second-Round Effects from Food and Energy Prices- an SBVAR approach," Working Papers 7008, South African Reserve Bank.
    3. Mehmet Balcilar & Rangan Gupta & Kevin Kotzé, 2017. "Forecasting South African macroeconomic variables with a Markov-switching small open-economy dynamic stochastic general equilibrium model," Empirical Economics, Springer, vol. 53(1), pages 117-135, August.

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