What’s not to like about the Reserve Bank’s two new inflation measures, “supercore” and PCCI?
The supercore inflation measure, which strips away the volatile elements of food and fuel, offers a more distilled view of inflation, one that is responsive to the levers of monetary policy. It cuts through the cacophony of price shocks to reveal the underlying trends that count the most for policymakers, business executives and the public.
The PCCI, or product component contribution index, dissects the inflation rate further, isolating the individual contributors to the overall figure. This allows for a granular analysis of which products are driving inflationary pressures, enabling a more strategic approach to policy formulation.
These measures aren’t just statistical novelties; they are essential tools that provide a nuanced view of inflation, reflecting the Bank’s commitment to precision in economic policy.
This double-barrel approach is an acknowledgment that inflation isn’t a blunt force but a closely scrutinised, sophisticated phenomenon that stands out as the most telling thread in the complex tapestry of economic indicators. As such, it requires equally sophisticated measures. In a country where economic disparities are as stark as the landscape, a single measure of inflation can blur the true picture. These new measures bring into focus the inflationary pressures felt by different segments of society, ensuring that policy decisions are made with a clear-eyed view of reality.
And in a world where economic landscapes are rapidly changing, the ability to adapt and refine our understanding of key indicators is crucial. The central bank’s new measures are a testament to this adaptability, signalling a shift towards a more dynamic and responsive economic policy framework.
Critics may argue that the introduction of multiple measures will complicate the narrative, adding layers of complexity to an already complex field. But in truth, it’s a simplification, a distillation of data into forms that are more digestible and, therefore, more actionable. In an era in which data drives decisions, the Bank’s measures are not just welcome; they are necessary. If anything, that represents a commitment to an informed, evidence-based approach to policymaking.
The timing of this new dual approach to inflation could not have been better for governor Lesetja Kganyago, who has sketched out a compelling argument that SA should embark on a historic monetary policy overhaul and undo the mistakes of the past two decades, when the government gave up on lowering the inflation target to 3%-5%.
This debate is enriched by these measures, as broached in the latest monetary policy review (MPR). The MPR’s call to lower administered prices to achieve structurally lower inflation heaps pressure on the government to push through promised structural reforms speedily.
Whether Kganyago is successful in getting everyone on the same page about the inflation target is anyone’s guess. But there are encouraging signs. For one thing, the Treasury has signalled that it was looking at a target that was more in line with that of SA’s peers and trading partners.
For another, finance minister Enoch Godongwana told parliament two years ago that SA would soon fully deregulate fuel prices, laying the groundwork for competition in the sector that most economists agree will result in lower prices.
Eskom’s three-way break-up is another way politicians are playing their role. Under the plan, SA will have a state-owned independent grid operator that will buy power from multiple electricity operators — a scenario that should, in theory, incentivise competing energy generators to offer value for money.
With “supercore” and PCCI, the central bank has provided the tools to engage in this debate with precision, to chart a course towards an inflation target that would make us feel less stressed about money.
The introduction of the tools is a commendable step forward. It equips policymakers with a more refined set of tools to dissect and understand the multifaceted nature of inflation. As SA, alongside the entire world, navigates the choppy seas of a post-pandemic economy, climate change and geopolitical uncertainty, these measures are not just a welcome addition, they are an essential one. They signal a shift towards a future where policy is informed by insight, shaped by nuance and driven an unwavering quest for understanding.
• Motsoeneng is Business Day deputy editor.
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