Monetary and Fiscal Policy Interactions in the Inflation Process: The Role of Public Transport Inflation Channel
Does public transport inflation impact the responses of repo rate to positive shocks on headline inflation and inflation by expenditure deciles. In addition, does public transport inflation channel show how headline inflation responds to petrol price inflation shocks? Evidence indicates at peak response to a positive shock to petrol prices, private transport inflation increases is 4 percentage points more than that of public transport inflation. In addition, evidence indicates that inflation for expenditure decile 10 and rural areas are the most affected by positive shocks to petrol price and private transport inflation. Furthermore, evidence shows that public transport inflation tends to exert downward pressure on headline inflation due to positive petrol price shocks, dampening the repo rate tightening to positive headline inflationary pressures.
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