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South African Reserve Bank

The Inflation Target 

As from 25 February 2009 the inflation target is a range of 3 to 6 per cent for the year-on-year increase in the headline CPI (CPI for all urban areas) on a continuous basis. This was announced by the Minister of Finance in his Medium Term Budget Policy Statement on 21 October 2008. The inflation target is set by government after consultation with the Bank.
Since the introduction of the flexible inflation-targeting framework in February 2000, the specification of the target has been reviewed on a number of occasions. The initial target measure was the CPIX, which was defined as the consumer price index for metropolitan and other urban areas, excluding the interest cost on mortgage bonds. This variant of the CPI was chosen because the headline or overall CPI was at that time influenced directly by changes in the Bank’s monetary policy. However, following revisions to the methodology employed to compile the CPI, which resulted in, inter alia, a change in the treatment of housing, mortgage interest costs no longer needed to be removed from the CPI when evaluating the effects of monetary policy.
When inflation targeting was introduced, the first target was specified as a calendar year average (for 2002) for CPIX inflation. Subsequent targets were also specified in terms of an average for a particular calendar year. In November 2003 the Minister of Finance announced that the calendar-year averaging would fall away and that the target would apply continuously.
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