Abstract
Inflation targeting anchors inflation expectations, which are not within the sphere of control of the authorities, but can only be influenced over time by consistent policy. As public distrust of inflation figures will feed through to inflation expectations, this paper highlights a comparison of the credibility of two different measures of inflation in terms of an inflation credibility barometer. In a comparison of the barometer results to the analysis of inflation perceptions reported by other central banks, it is concluded that the barometer delivers superior results. The main recommendation is that respondents should be requested in a follow-up study to indicate whether they attach a higher degree of credibility to the overall inflation rate or the rate used for targeting purposes.
Highlights
A recent article in the South African Journal of Economics, titled Supporting an inflation targeting policy with the measurement of inflation credibility (Rossouw & Joubert, 2005: Vol 73: 2), highlights the results of two pilot studies aimed at the compilation of an inflation credibility barometer in support of the anchoring of inflation expectations
This studys first conclusion is that a higher degree of acceptance of CPI than of CPIX as an accurate indication of inflation was recorded
This does not confirm the hypothesis that the public attention focused on the inflation rate used for targeting purposes increases its credibility
Summary
A recent article in the South African Journal of Economics, titled Supporting an inflation targeting policy with the measurement of inflation credibility (Rossouw & Joubert, 2005: Vol 73: 2), highlights the results of two pilot studies aimed at the compilation of an inflation credibility barometer in support of the anchoring of inflation expectations. Keeping the above perspectives in mind, the authors compiled questionnaires to highlight a comparison of the credibility of two different measurements of inflation through the use of the inflation credibility barometer. The aim was to reiterate some of their earlier recommendations with respect to the use of an inflation credibility barometer. Two of the three recommendations and some observations of the earlier study are summarised in section two of this paper, as well as some observed initiatives of other central banks in measuring or improving inflation credibility.
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