Inflation dynamics in an emerging market: The case of South Africa

The literature on the Phillips curve in South Africa finds little evidence of the effect of demand pressure on the inflation rate. Using quarterly data from 1960-2020, this paper shows that the Phillips curve exists in South Africa and the coefficient that relates the level of economic activity and inflation has been remarkably stable since the 1970s. We argue that the findings in the literature are due to mis-specification of the Phillips curve relationship and the inadequate consideration of key political events that shocked the South African labour market in the 1970s. (C) 2021 Economic Society of Australia, Queensland. Published by Elsevier B.V. All rights reserved.