DP9735 Exchange Rate Pass-Through to Consumer Prices in South Africa: Evidence from Micro-Data

Author(s): Janine Aron, Kenneth Creamer, John Muellbauer, Neil Rankin
Publication Date: November 2013
Keyword(s): consumer prices, CPI, exchange rate pass-through, exchange rate volatility, food prices, goods prices, monetary policy, services prices
JEL(s): C23, C51, C52, E3, E31, E52, E58, F31, F39
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9735

A sizeable literature examines exchange rate pass-through to disaggregated import prices but very few micro-studies focus on consumer prices. This paper explores exchange rate pass-through to consumer prices in South Africa during 2002-2007, using a unique data set of highly disaggregated data at the product and outlet level. The paper adopts an empirical approach that allows pass-through to be calculated over various horizons, including controls for domestic and foreign costs. It studies how pass-through differs across types of consumption goods and services and draws some aggregate implications about pass-through, using actual weights from the CPI basket. The heterogeneity of pass-through for different food sub-components and the role of switches between import and export parity pricing of maize is investigated and found significant for five out of ten food sub-components. Overall pass-through to the almost 63 percent of the CPI covered is estimated at about 30 percent after two years, but is higher for food.