The College of Law and Management Studies at the University of KwaZulu-Natal (UKZN) hosted a public lecture at its Westville campus to examine South Africa’s transition from a 3-6% inflation target to a single 3% target, and the role inflation expectations play in monetary policy.
Titled: ‘From 3-6% to 3% Inflation Target: The Role of Expectations in South Africa’s Monetary Policy’, the lecture featured Dr David Fowkes, Adviser to the Governors and member of the Monetary Policy Committee at the South African Reserve Bank (SARB).
The event brought together academics, students, business representatives and other stakeholders to explore the implications of the revised inflation target for South Africa’s economy and the everyday lives of its people.
Welcoming attendees, Deputy Vice-Chancellor and Head of the College, Professor Ernest Khalema, highlighted the impact of inflation on households and businesses, particularly amid rising fuel prices and the increasing cost of living.
“The effects of inflation are therefore not confined to economic indicators. They are experienced by households, workplaces and businesses across the country,” he said.
Khalema emphasised that the credibility of monetary policy depends not only on decisions taken by the Reserve Bank, but also on whether households, businesses and investors believe that the inflation target can be achieved and sustained. He described the lecture as an opportunity to connect economic theory with real-world experiences and strengthen engagement between researchers, policymakers, students and the business community.
In his presentation, Fowkes examined how inflation expectations influence price-setting behaviour and the effectiveness of monetary policy. He explained that South Africa’s previous 3-6% target had, over time, become associated with an inflation rate of 4.5%. The move to a single 3% target provides a clearer reference point for monetary policy.
Fowkes discussed how expectations respond to economic shocks and why the persistence of these shocks matters. While temporary price increases do not necessarily lead to sustained inflation, prolonged pressures can influence pricing and wage-setting decisions, making inflation more difficult to contain.
Food and fuel prices, exchange-rate movements and other supply-side pressures can all affect inflation. Monetary policy must therefore consider not only current price increases but also the risk that these pressures become embedded in inflation expectations.
He also highlighted the time lag between monetary policy decisions and their effects on the economy, explaining that interest-rate changes take time to influence inflation. While higher interest rates may be necessary in the short-term to contain inflationary pressures, sustained lower inflation can support lower long-term interest rates.
The discussion extended to broader economic challenges, including electricity supply and affordability, port operations and fiscal stability. Fowkes also highlighted the importance of education, literacy, numeracy, human capital development and entrepreneurship in strengthening economic resilience.
Climate change was another key consideration, particularly its effects on food production and prices, as well as financial stability risks associated with insurance gaps and the need for climate stress testing.
The lecture included a discussion facilitated by Dr Chris Tipoy of the School of Commerce.
For Ms Talenta Mabasa, a second-year PhD student in Economics at UKZN, the lecture highlighted the importance of inflation expectations in shaping monetary policy.
“What resonated with me most was the critical role inflation expectations play in shaping price-setting behaviour, inflation persistence and the effectiveness of monetary policy. The empirical evidence presented offered valuable insights into how expectations evolve in response to economic shocks and the importance of sustaining central bank credibility.
“Equally thought-provoking were the discussions on climate change and nonlinearities in monetary policy transmission, which underscored the increasingly complex environment in which monetary policy operates. As an economist, the engagement reinforced the need for monetary policy frameworks that are empirically grounded, responsive to structural economic realities and adaptable to evolving macroeconomic conditions,” she said.
Third-year Bachelor of Commerce in Accounting student, Mr Thandolwenkosi Nzimande, said the lecture connected economic concepts with everyday financial realities.
“The lecture helped me understand how inflation affects our daily lives, particularly through the rising cost of goods and services. It also highlighted the importance of being financially informed and making sound financial decisions. As future Chartered Accountants, we have a role to play in South Africa’s economic growth, while young people need to use financial knowledge to make informed decisions about their future,” he said.
The lecture reinforced UKZN’s commitment to creating meaningful opportunities for students to engage with industry professionals and policymakers, bridging the gap between academic knowledge and real-world practice.
Words: Lungile Ngubelanga
Photograph: Yola Ndzabe