An optimal inflation rate for South Africa

This article, published in Economic Change and Restructuring, examines whether South Africa’s current inflation target of 3–6% remains appropriate in today’s economic landscape. Drawing on global literature and empirical data, the paper argues that many of the theoretical models advocating for zero inflation overlook real-world dynamics such as wage rigidities, interest rate constraints, and measurement biases. Instead, it finds support for a moderate positive inflation target, closer to 2–3%, more aligned with South Africa’s trading partners and capable of preserving monetary policy flexibility. The paper concludes that while lowering the target may be appropriate, any adjustment should be gradual and transparent to avoid undermining central bank credibility.