Lesetja Kganyago: Lessons learnt - how the South African Reserve Bank moved inflation to 4.5% and what it cost

Special guest lecture by Mr Lesetja Kganyago, Governor of the South African Reserve Bank, at the Department of Economics, Stellenbosch University, Stellenbosch, 17 October 2024. 

The views expressed in this speech are those of the speaker and not the view of the BIS.

Good day.

My subject today is lower inflation. It is a major global theme – we have experienced the biggest inflation surge in decades, and now policymakers are looking back at the lessons learnt. I want to reflect on those lessons. I also want to discuss the South African experience with lower inflation. For that, I will focus on our move to 4.5% as the midpoint objective of monetary policy − a change we introduced back in 2017. All of this is relevant to our ongoing discussion about the inflation target and the desirability of moving to a lower target, in line with our peers.

The first lesson, from the global inflation surge, is that people really hate inflation. We always knew inflation was bad, and we always knew the public disliked it. Still, many economists have been surprised by the depths of public unhappiness with high inflation. This has been especially clear in advanced economies that had very low inflation over a sustained period, usually 2% or less. At those rates, most people did not have to worry about inflation. But after the COVID-19 pandemic, they suddenly experienced the kind of price increases usually found in poorer countries, and they hated it even more than expected. They objected when prices rose, and they were disappointed when they did not fall again afterwards. They felt their wages had not kept up with inflation. They objected that it would have been easier to cope with a recession. It is a strong reminder to central bankers that the public like price stability and dislike inflation.