Impact of Energy Shocks on Productivity and Inflation Revisited: Evidence from South Africa
Description
We investigate the effect of energy price shocks on agriculture, industry, and service sector productivity and food, transport, and housing inflation in South Africa from 2008:Q1 to 2023:Q4. Different measures of energy price shocks are generated, and the Impulse Response Function (IRF) and the Forecast Error Variance Decomposition (FEVD) analysis within the Structural Vector Autoregression environment are used to analyze the data. The IRF shows that energy price shocks have a significant and positive short-term effect on agricultural productivity, an insignificant effect on industrial sector productivity, and a significant and negative short-term effect on service sector productivity in South Africa. In addition, the results reveal that energy shocks have significant and positive short-term effects on food and transport inflation and significant and negative short-term effects on housing inflation in South Africa. Moreover, the FEVD results show that energy shocks explain more volatility in agricultural productivity, service productivity, and housing inflation. Therefore, we recommend, among others, that policymakers develop and implement policy measures to prevent the adverse effect of energy price shocks on the service sector and food and transport inflation.