n Studies in Economics and Econometrics - Labour costs and inflation in South Africa : an econometric study

Volume 26, Issue 2
  • ISSN : 0379-6205


The article develops a model which relates the labour market to domestic inflation in South Africa. The study includes a Granger causality test used to determine the direction of causality between labour costs and the consumer price index. Past wage growth in excess of inflation is positively correlated with prices in the short run. In the long run, rising labour costs have contributed significantly to inflation in South Africa. The predominant source of variation in domestic inflation's forecast errors is own shocks. Other sources include innovations from labour costs and the nominal effective exchange rate.

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