A new article from the Bank of England discusses the optimal inflation targets for African countries. It argues:
- ‘Many fast-developing African countries may justifiably have higher inflation rates than developed countries’ as economic convergence, supply shocks and rising productivity can push up non-tradable prices.
- Fiscal dominance undermines central bank independence and inflation targeting credibility.
- The effectiveness of monetary policy transmission can be undermined by crowding out effects from government spending and regulations.
We made the same arguments in our paper on gaps in the inflation targeting debate, presenting South African evidence of these factors that affect the appropriate inflation target and policy settings.
