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Aspects Of Inflation Analysis

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A continuous and significant rise in prices in general. There are four aspects of inflation:
 This is a neutral definition which means that it does not imply specific causes of inflation. Casual definitions of inflation highlight a specific cause of inflation, while excluding other possibilities. This could result in the formulation of wrong policies for fighting inflation, however, the neutral definition permits all causes of inflation to be taken into account.
 Inflation is a process and does not refer to a permanent increase in prices, however, it is a continuous increase in prices, where the prices of goods and services increase from year to year.
 Inflation is described as a significant increase in prices and as such, if prices only …show more content…

People invest their money in assets that have a good chance of keeping their value during inflation. Inflation also discourages saving money through fixed deposits and pension funds.

One of the most serious economics impacts is that it increases the cost of exports and import-competing industries. If inflation is higher in South Africa than other trading partners and internation competitors, South Africa wil suffer a loss of international competitiveness and must be compensated for by a depreciation of the rand against foreign currencies, however, this will increase inflation by raising the cost of imported …show more content…

The second, is fro the government to understand that the primary goal of the monetary policy, is to achieve price stability. In 2000, the Minister of Finance announced the adoption of an inflation-targeting framework for the monetary policy in South Africa. The first target set by the Minister in consultation with the SARB, was to achieve an average inflation of 3-6 percent in 2002, a target range, not a point target.
The third feature, is to use a range of variables, besides monetary aggregates and exchange rate, to decide on an appropriate setting of policy instruments, such as the repo rate. The SARB used the repo rate as its policy instrument which was set by the Governer of SARB in consultatin with the Bank’s Monetary Policy Committee (MPC), which consists of the Govener, Deputy Govener and serior bank officials who meet regularly. At these meetings, the MPC concidered information such as, latest forecasts prepared by the SARB

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