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.
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Notes
- 1.
If theoretical predictions hold, then increased consumer confidence could be accompanied by increased consumption spending, ceteris paribus. If the converse holds, then weak consumer confidence should lead to weak consumption demand.
References
Kabundi, A., & Mlachila, M. (2018). Monetary policy credibility and exchange rate pass-through in South Africa (Working Paper No. 04 WP/18/04).
Ndou, E., Gumata, N., & Ncube, M. (2018). Global economic uncertainties and exchange rate shocks: Transmission channels to the South African economy. Cham: Palgrave Macmillan.
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Ndou, E., Gumata, N., Tshuma, M.M. (2019). Does the Consumer Confidence Channel Affect the Response of Inflation to Exchange Rate Depreciation Shocks?. In: Exchange Rate, Second Round Effects and Inflation Processes. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-13932-2_13
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DOI: https://doi.org/10.1007/978-3-030-13932-2_13
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Publisher Name: Palgrave Macmillan, Cham
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Online ISBN: 978-3-030-13932-2
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