Given the implied welfare costs of an inflation range of three to sex percent, South African’s inflation target band is set at appropriate levels. In ‘Measuring the welfare cost of inflation in South Afica’ (ERSA Working Paper No. 68) Rangan Gupta and Josine Uwilingiye estimate the welfare cost of this inflation range to be 0,34% to 0,67% of GDP. They argue that, although these costs are high compared with similar estimates done for the US and Canada, they are nevertheless reasonably low in absolute terms.
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