can achieve. our labour markets are quite segmented, each part operating differently from the others and each requiring different reforms to get a better mix of job creation and less inflation. the highly skilled market reflects skills shortages, with employer competition fairly intense and unemployment low. this, in turn, generates strong salary increases, unhealthily feeding inequality and inflation. more jobs need to be created in this market, not just to reduce inequality and moderate inflation, but also to create more jobs for less - skilled workers. what this segment of the labour market needs, in the longer run, is more and better education to open the highly skilled job market to more south africans and better match what students study with the skills required by the private sector. temporary skilled immigrants would further ease salaries in this segment of the market and encourage economic growth directly by growing our domestic knowledge base. the possibility of pro - growth, pro - equality reform in this area should make it a policy priority. south africa ’ s other two labour markets don ’ t absorb nearly enough people, which leaves many south africans unemployed or out of the labour force entirely. as the national development plan recognises, this problem has a lot to do with spatial legacies and access to job networks. reducing the costs of transport and the costs of accessing job opportunities between 2010 and 2015, annual unit labour cost ( ulc ) growth has been as follows : 8, 3 per cent, 6, 6 per cent, 6, 5 per cent, 7, 3 per cent, 6, 2 per cent and 6, 6 per cent. ulc growth is forecast to accelerate to almost 8 per cent in 2016. bis central bankers ’ speeches should lower both the supply cost of labour and, indirectly, the cost of creating jobs. both would help to moderate wage inflation. institutions also play a key role in our inflation process. an important argument in academic literature, specifically by lars calmfors and john driffill, connects unemployment to the kinds of collective bargaining rules used in a country. 6 the basic idea is that a country can achieve better employment outcomes when costs take into account firm - level productivity or are guided at a very high, macroeconomic level. this is because company - or plant - specific unions have a special interest in the health of the firm that employs their members and will not want agreements that make the firm unsustainable. by contrast, very large unions have the power to shape macroeconomic outcomes. they will therefore avoid making deals which

, american economic journal : applied economics, volume 4, no. 3, july 2012. the 2001 medium term budget policy statement revised the inflation target range to 3 – 5 per cent for 2004 and 2005. in 2002, however, with inflation close to 10 per cent, the finance minister postponed the target range revision indefinitely. see trevor manuel, address to the national assembly on the introduction of the 2002 medium term budget policy statement and the 2002 / 03 adjustments appropriation bill, 29 october 2002 ( http : / / www. treasury. gov. za / documents / mtbps / 2002 / speech. pdf ). as an aside, we see that india has chosen 4 per cent as the midpoint for its recently adopted inflation target range. the new target is 4 per cent plus or minus 2 per cent. bis central bankers ’ speeches inflation might move to the top or the bottom of the range but it will rarely breach the target range entirely. yet this isn ’ t the way in which the policy committee has targeted inflation. rather, we have kept monetary policy relatively loose over long periods of time, hoping for a bit more growth. we have tended to cut rates whenever inflation looked like falling below the midpoint of the target range. we have hit the lower half of the target range only for brief periods of time. looking back, headline inflation has averaged 6, 2 per cent over the entire inflation - targeting period ( since 2000 ). furthermore, in the event of shocks, we have repeatedly breached the upper end of the target range, with inflation at over 6 per cent for about a third of the time in the last five years. the perception of wage and price setters is that we have primed ourselves to miss the inflation target by aiming close to the top of the range, regardless of our position in the business cycle. trade - offs : final thoughts by now, it should be clear why we ’ ve had high and rising inflation despite weakening gdp growth. we ’ ve experienced a drought that has led to sharply higher food prices. the exchange rate has been depreciating for several years and is now very weak. some of this depreciation was appropriate and necessary, given falling commodity prices and some measure of policy tightening in the us. but the scale of depreciation we have experienced speaks to domestic challenges as much as to international ones. our wage and salary arrangements, along with rigid product markets, generate persistent inflation pressure, sometimes accelerating inflation but always preventing it from falling substantially