Monetary and Fiscal Policy Interactions on the Inflation Process: The Role of the Fuel Levies Channel
Evidence shows that fuel levies amplify the effect of the rand per United States of America dollar (R/US$) exchange rate depreciation and oil price increases on petrol price inflation. At the same time, fuel levies also amplify the impact of petrol price inflation on headline inflation. In addition, we assess the role of fuel levies on the repo rate responses to headline inflation, the results show that fuel levies propagate the increase in the repo rate due to positive inflation shocks.
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