Price setting in South Africa 2001-2007 - stylised facts using consumer price micro data

Inflation, a macroeconomic variable, is underpinned by microeconomic data. This paper uses a large microdata sample at the unit level of South Africa’s Consumer Price Index (CPI) for the period 2001m12 to 2007m12 to begin to understand price setting conduct in South Africa. An understanding of price setting conduct is important since macroeconomic models, used for monetary policy, often incorporate estimates of pricing conduct. Often these estimates are not based on rigorous analysis of the underlying data. The dataset used in this paper allows for the following to be calculated: the frequency of price changes, the frequency of price increases and price decreases, findings on the magnitude of price changes, price increases and price decreases, and findings on the duration of prices, and thus provides a more accurate estimate on pricing conduct than has been previously available for South Africa. Results are presented at both an aggregate and a disaggregated level, based on the CPI’s major product categories and show the heterogeneous nature of price changes within the South African economy. These South African results are compared briefly to the results for other countries, where such micro level price data analysis has been undertaken. The study is part of a broader research effort into the implications of price setting conduct for monetary policy in South Africa, including an analysis of time- and state-dependent factors influencing the frequency and magnitude of price changes.