![]() ![]() Demand-side inflation: When consumers spend more money, prices tend to rise faster.Monetary economists identify three basic causes of inflation: demand, supply and expectations. Stats SA monitors these prices throughout the year, and reports any changes each month. This index represents a typical basket of goods and services used by South African households, comprising everything from lottery tickets and petrol to life insurance. In South Africa, the standard measure of inflation is Statistics South Africa’s (Stats SA’s) consumer price index. This shows that inflation dynamics reflect a country’s economic structures and policy choices. For example, inflation in the United States averaged 1.8% in Turkey it was nearly 10%. Other countries had different inflation rates over the same period. For instance, in South Africa, consumer prices rose by 65% between 20, at an average annual inflation rate of 5.2%. Most economies are inflating all the time: every year, prices are generally higher than they were the year before. Inflation involves much more than price shocks such as higher petrol prices. Inflation is an increase in the general price level of an economy. They can later repurchase (repo) that asset at a lower price, which reflects the interest they paid (i.e. The repo rate is so called because banks give the SARB an asset, such as a Government bond, in exchange for cash. This affects the borrowing costs of the financial sector, which, in turn, affect the broader economy. ![]() Monetary policy is implemented by setting a short-term policy rate – the repo rate. The value of the currency is therefore protected relative to domestic consumer prices. To protect the value of the rand, the SARB uses inflation targeting, which aims to maintain consumer price inflation between 3% and 6%. The monetary policies of countries may differ, but most major economies aim for low and stable inflation, and have publicly announced inflation targets. The basic aim of monetary policy is to determine how much money an economy should have in circulation. The SARB then independently makes monetary policy so as to achieve this target. ![]() National Treasury, in consultation with the SARB, sets the inflation target, which acts as a benchmark against which price stability is measured. The SARB uses interest rates to influence the level of inflation. Monetary policy is the means by which central banks manage the money supply to achieve their goals. ![]()
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