Nominal wages drive inflation in South Africa, real productivity less impactful.
The article examines different models of inflation in South Africa and finds that changes in nominal wages have the strongest positive relationship with inflation. Real labor productivity improvements have a weaker negative association with inflation. Supply side shocks also impact inflation, while demand-side shocks like the output gap do not show a consistent link. Instead, growth in the money supply and government expenditure are consistently associated with inflationary pressure.