Back to top

Measuring Core Inflation in South Africa

Error message

  • Deprecated function: Function create_function() is deprecated in eval() (line 1 of /usr/www/users/econrs/modules/php/php.module(80) : eval()'d code).
  • Deprecated function: Function create_function() is deprecated in eval() (line 1 of /usr/www/users/econrs/modules/php/php.module(80) : eval()'d code).
Author(s): 
Stan du Plessis, Gideon du Rand & Kevin Kotzé
Publication date: 
February, 2015

Measures of core inflation convey critical information about an economy. They have a direct effect on the policy-making process, particularly in inflation-targeting countries, and are utilized in forecasting and modelling exercises. In South a Africa the prices indices on which inflation is based have been subject to important structural breaks following changes to the underlying basket of goods and the methodology for constructing price indices. This paper seeks to identify a consistent measure of core inflation for South Africa using trimmed-means estimates, measures that exclude changes in food and energy prices, dynamic factor models and wavelet decompositions. After considering the forecasting ability of these measures, which provide an indication of expected second-round inflationary effects, traditional in-sample criteria were used for further comparative purposes. The results suggest that wavelet decompositions provided a useful measure of this critical variable.

Nike Shoes
Publication PDF: 
Series title: 
Working paper 503
Journal: 
South African Journal of Economics
Classification-JEL: