Administered prices, which include prices set by government agencies or regulators (such as electricity tariffs, water charges, fuel prices and public transport fares), have played a key role in deviations in South Africa’s inflation from the inflation target. Today’s post by Lisa Martin shows that electricity and water have risen much faster than overall consumer price categories. Eskom’s aggregate standard tariffs, for example, have increased at almost 15 percent per year since 2010, compared to average CPI inflation of about 5.2 percent over this period.
As we argued in our paper on gaps in the inflation target debate, this has implications for the optimal rate of inflation the central bank should target and the appropriate conduct of monetary policy.
