Sustained fuel shock raises inflation expectations by 0.65 points
A sustained 30 percent fuel price increase raises South African firms' two-year inflation expectations by up to 0.65 percentage points in South African Reserve Bank (SARB) research. A once-off shock raises them by 0.15 percentage points.
Persistence multiplies the price pressure
Anis Foresto, Monique Reid and Cobus Vermeulen estimate that a once-off 30 percent fuel price shock raises current-year and one-year-ahead inflation expectations by 0.32 and 0.16 percentage points.
Both effects dissipate after five quarters.
A sustained shock raises two-year-ahead expectations by 0.65 percentage points after five quarters, fading after eight.
Fuel prices remain 30 percent above pre-shock levels for three quarters, then ease to 24, 18, 12, 6 and 6 percent above them.
Starting from April 2026 inflation of 4.0 percent, a stylised Phillips curve simulation puts the sustained shock's expectations-driven inflation effect at a peak of 0.5 percentage points after six quarters, versus 0.12 points after eight quarters for a once-off shock.
High attention shapes the estimates
The authors use 1,946 firm observations from the Bureau for Economic Research survey over Q1 2021–Q4 2024, a period of high inflation attention.
They identify fuel shocks through a structural vector autoregression covering Q1 2006–Q1 2026, controlling for global oil conditions and domestic variables, then estimate local projections.
Manufacturing and trade expectations respond persistently; business services react briefly.
Margins, competition and demand elasticity determine firms' capacity to pass higher costs to customers.
A channel, not a forecast
The estimates isolate expectations, not the fuel shock's full inflation cost.
The simulation excludes other transmission channels and feedback from inflation to expectations, which the authors describe as a lower-bound limitation.
They conclude that anchoring expectations may require tighter policy for longer.