Economic News

Stagflation Battle: Emerging Economies Adapt, South African Reserve Bank Governor Weighs In

Published by
WIlliam Dube
  1. Global inflation surge and its impact: The COVID-19 pandemic and the Russian invasion of Ukraine have led to a surge in global inflation, affecting both advanced and emerging economies. Complex supply chains, bottlenecks, and labor shortages have contributed to the inflationary environment.
  2. Policy errors and challenges: Central banks’ policy responses to the pandemic, including slashing interest rates and providing massive financial stimulus, have exacerbated inflation and led to imbalances in labor markets and demand-supply mismatches. Existing macroeconomic models face the risk of underperformance due to outdated data and increased uncertainty.
  3. Importance of central bank transparency: South African Reserve Bank Governor Lesetja Kganyago emphasized the role of transparency in addressing stagflation, as it can help set the tone for public policy and ease non-monetary constraints. He expressed optimism for emerging economies, highlighting lessons learned from central banking and monetary policy experiences.

Governor of the South African Reserve Bank, Lesetja Kganyago, addressed the challenges faced by emerging economies in the current global inflation environment at the Peterson Institute for International Economics. Kganyago focused on South Africa’s experience and highlighted the importance of central bank transparency in tackling stagflation.

The sudden surge in global inflation, a result of the COVID-19 pandemic and the Russian invasion of Ukraine, has had a significant impact on emerging economies. Complex supply chains, bottlenecks, and labor shortages have led to higher inflation rates, affecting both advanced and developing countries.

Kganyago acknowledged the policy errors made by central banks in response to the pandemic, which further exacerbated inflation. Policymakers slashed interest rates and provided massive financial stimulus, leading to imbalances in labor markets and demand-supply mismatches.

While some supply-demand mismatches have abated, challenges remain. The labor market is tight, with high levels of job vacancies and low unemployment rates. Additionally, services and core goods prices are either sticky or have re-accelerated, making the inflation environment more complex.

The existing macroeconomic models are at risk of underperforming due to outdated data and increased uncertainty. Kganyago mentioned that the assumption of anchored inflation expectations might be too strong, and there’s a need for more microeconomic analysis of labor supply.

He also pointed out that companies’ profit margins have increased, suggesting a greater capacity to pass through costs to consumers. However, understanding the interactions between various short-term demand and supply forces is crucial before drawing conclusions.

Kganyago emphasized the importance of central bank transparency in addressing stagflation. For emerging economies, transparency can help set the tone for public policy, easing non-monetary constraints to better inflation outcomes. South Africa’s approach has been to communicate its monetary policy challenges clearly, fostering better public discussions about the obstacles faced by the economy.

Despite the headwinds, Kganyago expressed optimism, highlighting the lessons learned from emerging market central banking and monetary policy. The ongoing challenges in global inflation call for better communication and clarity of policy from both advanced and emerging economies.

WIlliam Dube

William Dube is a finance and economic news expert with over 10 years of experience in economic anaylsis, financial product assessment and market analysis. With a numerous certificates from prestigious universities including but not limited to Yale University and the University of Pennyslivenia. William specializes in providing insightful news developments in South Africa and commentary on investment strategies, risk management, and global economic trends. You can contact him on

Published by
WIlliam Dube

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