Are inflation surprises perceived to be indicative of shifts in trend inflation? Is the yield curve a useful barometer of how the market interprets inflation data? How do inflation surprises affect asset prices?
We are pleased to publish a new Codera Policy Brief that evaluates these questions by looking at historical market reactions to inflation surprises in South Africa. Consistent with the literature, we find that the currency tends to appreciate after positive headline inflation surprises. Contrary to expectation, we show that positive headline and core surprises have tended to be associated with a flatter curve. Our results suggest that the impact of inflation surprises tend to be swamped by external shocks or spikes in South
Africa‐specific risks. Read the note here.
