The impact of inflation on the automobile sales in South Africa

Abstract

This paper analyses the relationship between inflation (INF) and Automobile sales in South Africa by using the co-integration and causality tests. The analysis has been conducted using monthly data over the period 1960:1 through 2013:9. The Augmented Dickey-Fuller Unit Root test indicates that the two series are stationary in the first-difference not in level. The Johansen-Juselius co-integration test show that INF and new vehicle sales (NVS) are co-integrated in the long run, hence, long-run equilibrium exist between the two variables. This study, using the Granger-Causality test has found that there is oneway causal effect (unidirectional causality) running from INF to NVS at 5% level of significance. Given that the automotive industry contributes 6% to the country's Gross Domestic Product (GDP) and creating more than 300 000 jobs, South Africa must double its efforts in managing inflation at very low levels.