Today’s post by Jurgens Fourie looks at the relationship between SARB’s policy rate and three core inflation measures since 2012. The contemporaneous correlation is weakly positive since SARB tends to respond to rising inflation if there is a risk of breaching the inflation target. However, as the lag extends, the relationship inverts. The correlation is highest at about 24 months and strongest with Codera’s CPI-Common measure, indicating the transmission effects may persist beyond the conventional 12-18 month window SARB mentions in its policy communication. The strengthening negative relationship at longer horizons suggests policy does eventually dampen inflation, but with a considerable delay.
