Do Energy Prices drive Inflation in South Africa? An unrestricted VAR Approach
Main Article Content
Abstract
This study was aimed at investigating the effects of energy prices on inflation in South Africa. This was achieved by means of econometric analysis and annual time series data spanning from 1994 to 2020. The findings revealed that electricity tariffs and petrol prices exhibit a positive effect on inflation in South Africa. On the contrary, interest rates and the exchange rate as control variables were found to have a negative effect on the inflation rate. The impulse response function indicated that inflation responds positively to innovations in petrol prices, electricity tariffs and money supply in the medium and long term but responds negatively to innovations in interest rates and exchange rates. Further to this, the variance decomposition function revealed that variations in inflation are largely explained by its own innovations and partially explained by innovations in petrol prices, money supply and interest rates. Lastly, the granger causality analysis showed no evidence of causality between inflation and explanatory variables during the specified period. Given that energy prices place upward pressure on inflation, the study recommends a review of the current fuel and electricity tariff structure to provide the much-needed relief to households and businesses.
Downloads
Metrics
Article Details
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors who publish with this journal agree to the following terms:
- The author(s) retain the copyright on work published in the Journal of Applied Economics and Business Studies and grant the journal right of first publication.
- Individual articles are published Open Access under the Creative Commons Attribution 4.0 International License , which permits unrestricted use, distribution, and reproduction on any medium, provided the original author (s) and source are properly credited.