targets than we have had with other, older approaches, such as pursuing money supply targets or trying to control the exchange rate. importantly, like many other countries, we have found that inflation targeting has helped to deliver good economic outcomes. why inflation targeting produces good economic outcomes for a start, as intended, inflation targeting has helped us to get lower inflation. in the 1980s inflation averaged about 15 %. it was almost 10 % in the 1990s. since the adoption of inflation targeting in 2000 it has been close to 6 %. lower inflation protects south africans [UNK] living standards, especially of people without the power or financial knowledge to shield themselves from price increases – most of all the poor. i will give you a very simple example. bread costs about r11 at the moment. 3 if inflation stays at around 6 %, bread is going to cost r35 in 20 years [UNK] time. if inflation goes back to pre - democracy levels, that same loaf of bread is going to cost r180 in 20 years. these kinds of huge price increases will leave many more people behind. this is why higher inflation is a recipe for more poverty and more inequality. lower inflation has also permitted lower interest rates. the average prime rate in the 1990s was almost 19 %. it was about 13 % in the 2000s and has averaged just under 10 % since 2010. among other benefits – like supporting long - term, job - creating investment – this decline in rates sasko premium brown bread, 700g, pick [UNK] n pay, r10. 99, priced on 13 july 2017 page 4 of 17 has contributed to the inclusion of millions more south africans in the market for financial services. 4 furthermore, targeting inflation has allowed us to be more flexible. when you are aiming at a relatively slow - moving variable like inflation, you do not need to react as rapidly as you might have had to with something like the exchange rate. as a result, interest rate changes have been smoother. back in 1998, for example, before we started inflation targeting, we raised interest rates by almost 7 percentage points in just five months. the policy rate went to nearly 22 % and the prime rate reached 25. 5 %. in more recent years, by contrast, we adjusted the policy rate by just 2 percentage points over three - and - a - half years, to 7 %, before lowering it to 6. 75 % in july. this sort of smooth adjustment is much easier on firms, households and government than large, rapid adjustments.

typically, that means lowering our policy interest rate to stimulate demand when economic slack is putting downward pressure on inflation and raising that rate when we see excess demand emerging. but the shutdown is not typical. the most recent data indicate that inflation has declined sharply. but that is due less to overall economic slack than to some specific factors — especially the drop in prices of gasoline and travel services, as well as shifts in spending. these shifts mean that the standard consumer price index ( cpi ), based on the cost of a fixed basket of goods, is less meaningful. while many of these changes will reverse when businesses reopen, we expect to see some persistent price effects, which will differ across products and services. - 10 we will also likely see some further changes in consumption patterns. these will affect the true underlying price pressures throughout the crisis and recovery period. during that adjustment, official inflation measures might be less informative than usual about capacity pressures. at the bank, we are working to assess the impact that these shifts in spending patterns can have on measured inflation. during the shutdown, consumers have cut their spending on goods such as food away from home, airfare, clothing and gasoline and on services such as haircuts. on the flip side, the share of food purchased in stores and pharmaceutical products has risen sharply. overall, the results indicate that the decline in inflation experienced by consumers may be less than indicated by the official cpi measure. moreover, stimulating demand cannot do much to influence inflation as long as the stores, and indeed much of the economy, remain closed. in this setting, monetary policy needs to be even more forward looking than usual, seeing beyond the shutdown to its potential implications for the subsequent recovery. the loss of household wealth coupled with self - reinforcing weakness in business and consumer confidence could continue to weigh on aggregate demand after the restrictions are lifted. some businesses will fail, and workers will not regain their old jobs. supply chains, both in canada and globally, may be disrupted for some time. while the steps we have taken should help, we are likely to emerge from the shutdown with both demand and supply weaker than before. the scarring associated with the shutdown could lower productivity, which tends to result in higher inflation. but the bank ’ s analysis suggests that the decline in demand stemming in part from weaker business and consumer confidence is likely to have a larger effect. on balance, there is likely to be downward pressure on inflation. as restrictions are lifted, monetary