Imported Inflation in South Africa: An Empirical Study

The main objective of this paper is to analyse the inflationary impact of exchange rate depreciation in South Africa over the period 1984-1998 when the monetary authorities adopted a more market-oriented exchange rate system. Although the empirical part of the paper extensively focuses on this period, the analysis also concentrates on the period 1973-1983 to determine whether the underlying causes of inflation have changed following significant structural, political and institutional changes. From a macroeconomic perspective, the empirical results show that the long-run causes of inflation in South Africa have changed from a demand-pull inflation over the period 1973-1983, to a cost-push cause (import prices and wage rate changes) of inflation since 1987 when a market determined exchange rate finally stabilised.