Firm-level inflationary expectations in South Africa: The role of oil supply news shocks

Abstract

Using a unique firm-level survey from the Bureau of Economic Research in South Africa covering a panel of 1,444 South African firms surveyed at quarterly frequency between 2000 and 2023, we examine how global oil news shocks shape firms’ inflation and wage expectations. We identify exogenous oil supply news shocks following Känzig (2021) and embed them in a fixed-effects panel regression that controls for domestic macroeconomic and financial conditions through four estimated factors. A one-quarter-lagged oil news shock has a positive and statistically significant effect on firm-level inflation expectations (0.14 percentage points at the one-year horizon, 0.09 at two years) and wage expectations (0.13 percentage points). The responses are robust to alternative shock identifications and sub-sample estimations. Sectoral analysis reveals heterogeneity, more substantial for wage, that we interpret in light of two channels documented in the literature — cost pass-through and