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PCCI of SA’s CPI: Estimating the persistent and common component of inflation for South Africa
Published Date:
2024-08-01
Author:
Ayrton Amaral, Marique Kruger, Dineo Lekgeu and Witness Simbanegavi
Last Modified Date:
2024-08-01, 10:11 PM
Category:
Publications > Special Occasional Bulletin Of Economic Notes |
This Note presents a new, additional measure of underlying inflation for South Africa, termed the persistent and common component of inflation (PCCI). The PCCI indicates that inflation pressures in the domestic economy are elevated, with outcomes remaining closer to the upper limit of the target band over the past year. The information content of the PCCI is similar to that of the other measures of underlying inflation, such as core and trimmed mean inflation. In particular, all three measures presently indicate that the persistence of headline inflation above the 4.5% midpoint partly reflects elevated underlying inflation. Reliability assessments show that the PCCI has high predictive power on headline inflation, is stable and is less volatile than headline inflation. Future work will consider estimating the PCCI with other methods as part of further testing the measure’s validity (i.e. whether it measures underlying inflation accurately) and reliability (i.e. if it does so consistently).