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Does the Consumer Confidence Channel Affect the Response of Inflation to Exchange Rate Depreciation Shocks?

  • Eliphas Ndou
  • Nombulelo Gumata
  • Mthokozisi Mncedisi Tshuma
Chapter

Abstract

Evidence indicates the weak consumer confidence reduces the size of the exchange rate pass-through (ERPT) to consumer price inflation. In addition, evidence indicates that weak consumer and business confidence reduces the size of ERPT to consumer price inflation more than monetary policy credibility does. In policy terms, this evidence suggests, the size of inflationary pressures from the exchange rate depreciation shocks are much lower than they would be, when consumer confidence is weak. Therefore, the non-consideration of the influence of weak consumer confidence on the ERPT may lead to an upward bias on the projections of policy rate path.

References

  1. Kabundi, A., & Mlachila, M. (2018). Monetary policy credibility and exchange rate pass-through in South Africa (Working Paper No. 04 WP/18/04).Google Scholar
  2. Ndou, E., Gumata, N., & Ncube, M. (2018). Global economic uncertainties and exchange rate shocks: Transmission channels to the South African economy. Cham: Palgrave Macmillan.Google Scholar

Copyright information

© The Author(s) 2019

Authors and Affiliations

  • Eliphas Ndou
    • 1
  • Nombulelo Gumata
    • 2
  • Mthokozisi Mncedisi Tshuma
    • 3
  1. 1.South African Reserve BankPretoriaSouth Africa
  2. 2.PretoriaSouth Africa
  3. 3.National Planning Commission SecretariatPretoriaSouth Africa

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