Simulations show 3 percent inflation target withstands major shocks
The South African Reserve Bank released five economic research notes examining the transition to a 3 percent inflation target, market concentration, de-dollarisation and domestic refining capacity losses in its September 2026 bulletin.
Anchoring the three percent target
Quarterly Projection Model simulations demonstrate a 78 percent probability that inflation remains between 2 percent and 4 percent under the newly adopted 3 percent target in normal conditions.
Across 100,000 random shock simulations, headline inflation maintains a 62 percent weighted probability of staying within that tolerance band.
Crucially, a one standard deviation shock to major drivers—such as an 8.84 percent rand depreciation or a 39.94 percent oil price increase—causes headline inflation to deviate by less than 1 percentage point over a one-year horizon.
Survey data shows 48 percent of firms already recognize the 3 percent target, demonstrating that expectations are adjusting rapidly.
Structural hurdles from fuel to market power
Beyond monetary anchors, structural bottlenecks constrain macroeconomic performance.
Domestic refining capacity has halved to 250,000 barrels per day, forcing refined fuel imports above 50 percent of demand and adding R76 billion in import costs between 2021 and 2024.
Meanwhile, high product market concentration—reflected in an OECD regulation score of 2.83—creates asymmetric pricing where firms lift prices quickly but lower them slowly.
On de-dollarisation, external resilience depends on domestic productivity rather than currency denomination.
Credibility meets structural reality
The findings validate the technical case for a lower inflation target as expectations remain well anchored.
Yet monetary credibility cannot solve deep microeconomic bottlenecks and uncompetitive market structures.
Without structural reform, disinflation gains will remain vulnerable to domestic supply shocks.
Source: Occasional Bulletin of Economic Notes 26/01
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