Thoughts on the Market

The Credibility of Inflation Targets

August 12, 2025

The Credibility of Inflation Targets

August 12, 2025

Can a central bank simply announce an inflation target and get everyone to believe it? Our Global Economist Arunima Sinha looks at the cases of South Africa and Brazil to explain why it’s a subject of decades-long debate.

Transcript

Arunima Sinha: Welcome to Thoughts on the Market. I'm Arunima Sinha, Global Economist at Morgan Stanley.

 

Today I'm going to talk about how inflation targets of central banks matter for market participants and economic activity.

It's Tuesday, August 12th at 10am in New York.

 

Tariff driven inflation is at the center of financial market debates right now. The received wisdom is that a central bank should look through one-off increases in prices if – and it is an important if – inflation expectations are anchored low enough. Inflation targets, inflation expectations, and central bank credibility have been debated for decades.

 

The Fed's much criticized view that COVID inflation would be  transitory was based on the assumption that anchored inflation expectations would pull inflation down. The Fed is more cautious now after four years of above target inflation. Can a central bank simply announce an inflation target and get everyone to believe it?

 

 

Far away from the U.S., the South Africa Reserve Bank, SARB, is providing a real time experiment. The SARB’s inflation target was originally a range of 3 to 6 per cent, with an intention to shift to 2 to 4 percent over time. At its last meeting, the SARB announced that it was going to target the bottom end of the range, de facto shifting to a 3 percent target. A decision by the Ministry of Finance in the coming months is likely necessary to formalise the outcome, but the SARB has succeeded in pulling inflation down. It has established credibility, but we suspect that more work is needed to anchor inflation expectations firmly at 3 percent.

 

Key to the SARS challenge, as the Fed’s – the central bank cannot control all the drivers of inflation in the short run. For South Africa, fiscal targets and exchange rate movements are prime examples. The experience in Brazil offers insight for South Africa. The BCB adopted an inflation target in 1999 following the end of the currency peg that helps the transition away from hyperinflation. The target was initially set at 8 percent, lowered to 4.5 percent in 2005, and then lowered again to 3 percent in 2024.Fiscal outcomes, market expectations, and currency volatility have been hard to contain. The lessons apply to South Africa and also the Fed. Successful inflation targeting relies on a clear framework, but also on institutional strength and political consensus.

 

For South Africa, as inflation falls ex-ante real interest rates will rise. That outcome will be necessary to restrain the economy enough to make sure that the path to 3 percent is achieved. For an open EM economy, there likely needs to be consistency by both monetary and fiscal authorities with regard to short-term pressures, both internal and external.

 

While we ultimately expect the SARB to be able to anchor inflation expectations, the journey may not be a quick one; and that journey will likely depend on keeping real interest rates on the higher side to ensure the convergence.

We take the experiences of South Africa and Brazil to be informative globally. Simply announcing an inflation target likely does not solve the problem. The Fed, for example, spent much of the 2010s hoping to get inflation up to target – while now ironically, inflation in the US has run above target for almost half a decade.

 

Whether the lingering effects of the COVID inflation has affected the price setting mechanism is unclear, as is whether tariff driven inflation will exacerbate the situation. Our read of the evidence is that inflation expectations and central bank credibility come from hitting the target, not from announcing it.

 

Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share thoughts on the market with a friend or colleague today. 

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Morgan Stanley Research looks at how changes in demographics, ownership, and distribution can boost tech adoption to revolutionize the global sports industry.

Transcript

Welcome to Thoughts on the Market. I’m Cesar Medina, Morgan Stanley’s Latin America Technology, Media, and Telecom Analyst. Today – we discuss what’s driving the digital revolution in global sports. And what it means for fans as well as investors.

 

It’s Monday, August 11th, at 10am in New York.

These days, watching a sporting event at home usually means streaming the big game on a large 4K HDR screen. Maybe even 8K for premium events. You might access real time stats from a supporting app or social media on a secondary device. Maybe even have a group chat with friends.

 

But imagine a game with real-time personalized stats. Immersive alternate camera angles. Or even experiencing the match from a player's perspective—all powered by AI. These innovations are already being tested and rolled out in select leagues.

 

Global sports generates half a trillion dollars in annual revenues. Despite all that cash, until very recently the industry was slow to embrace digital technology, lagging behind movies and music.  Now that’s changing – and fast.

So, what’s driving this transformation?

 

Three powerful forces are closing this digital gap. One – younger, tech-savvy audiences demanding more immersive and personalized experiences. Two – new distribution models, with digital platforms stepping into the arena.  And three – institutional investment, bringing capital and a push for modernization.

 

You might ask – what does this all mean for fans, investors, and the future of entertainment?

 

Let’s start with fans. Today’s sports fans aren’t just watching—they’re interacting, betting, gaming, and sharing. And younger fans are leading the charge. They are spending more time online and expect hyper-personalized content. They're more interested in individual athletes than teams, and they engage through social media, fantasy sports, and interactive platforms.

 

Surveys show that fans under 35 are significantly more likely to spend money on sports if the experience is digital-first. Some leagues have seen viewership jump by 40 percent after introducing interactive features. Others are using AI to personalize content, boosting engagement and revenue.

 

Digital transformation isn’t just about watching games though—it’s about reimagining the entire ecosystem. When it comes to live events, smart venues are using AI to adjust ticket prices based on weather, opposing team, and demand. Some are even using facial recognition for faster entry and purchases. Streaming platforms are making broadcasts more interactive, while combating piracy with predictive tech. As for engagement, fantasy sports, esports, and betting are booming. AI-driven platforms are helping fans make smarter picks—and spend more.

 

Altogether, these innovations could boost global sports revenues by over 25 percent, adding more than $130 billion in value.

 

While North America leads in monetization, Emerging Markets are catching up fast. In India, Brazil, and the Middle East, for example, sports franchises are seeing double-digit growth in value—sometimes outpacing traditional media.

 

And here’s the kicker: many of these regions have younger populations and faster-growing digital adoption. That’s a recipe for serious growth. Meanwhile, niche sports and women’s leagues are also gaining global traction, expanding the definition of mainstream entertainment.

 

Of course, this transformation of the sports industry faces real hurdles—technical expertise, budget constraints, and cultural resistance among coaches and athletes. But the incentives are clear. And as more capital flows into sports—from private equity to sovereign wealth funds—digital transformation is becoming a strategic priority.

 

So, what’s the biggest takeaway?

 

Global sports is no longer just about what happens on the field. It’s about how fans experience it—on their phones, in their homes, and in the stadiums of the future. So whether you’re an investor, a fan, or just someone who loves a good underdog story, this is a game worth watching.

 

Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

 

Morgan Stanley Thoughts on the Market Podcast

Our U.S. Thematic and Equity Strategist Michelle Weaver discusses what back-to-school spending trends reveal about consumer sentiment and the U.S. economy.

Transcript

Michelle Weaver: Welcome to Thoughts on the Market. I’m Michelle Weaver, Morgan Stanley’s U.S. Thematic and Equity Strategist here at Morgan Stanley.

Today -- we're going back to school! A look at the second biggest shopping season in the U.S.. And what it can tell us about the broader market.

It’s Friday, August 8th, at 10am in New York.

It's that time of the year again. With parents, caregivers and students making shopping lists for back-to-school supplies. And it’s not just limited to school supplies and backpacks. It probably also includes laptops or tablets, smart phones and, of course, the latest clothes. For investors, understanding how consumers are feeling—and spending—right now is critical. Why? Because back-to-school spending tells us a lot about consumer sentiment. And this month’s data has been sending some mixed but meaningful signals.

Let’s start with the mood on Main Street. According to our latest proprietary consumer survey, confidence in the economy is sliding. Just under one-third of consumers think the economy will improve over the next six months—which is down from 37 percent last month and 44 percent in January. And that’s a pretty big drop from the start of the year. Meanwhile, half of all consumers expect the economy to get worse.

Household finances are also feeling the squeeze. While around 40 percent expect their financial situation to improve, closer to 30 percent expect it to worsen. The net score is still positive, but down from last month and even more so from January.

The takeaway? Consumers are feeling the pinch—and inflation remains their number one concern.

We did see a bit of a brighter picture though around tariff fears. And tariffs are definitely still a worry, but we’re past that point of peak fear. This month, over a third of consumers said they’re “very concerned” about tariffs—down from 43 percent in April, post Liberation Day. And fewer people are planning to cut back on spending because of them: that number is just 30 percent now, compared to over 40 percent a few months ago.

In fact, almost 30 percent of consumers actually plan to spend more despite tariffs. That’s a sign of resilience—and perhaps necessity—as families prepare for the school year.

And that brings us back to back-to-school shopping, which is a relative bright spot.

Nearly half of U.S. consumers have already shopped or are planning to shop for the school year—right in line with what we saw in previous years. Among those shoppers, 47 percent are spending more than last year, while only 14 percent plan to spend less. That’s a significant net positive at 34 percent.

What’s in the cart? More than 90 percent of shoppers are buying apparel, footwear, and school supplies. Apparel leads, followed by footwear, followed by supplies.

If we look beyond the classroom at other things people are spending on, travel is still a priority. Around 60 percent of consumers plan to travel over the next six months, with visiting friends and family as the top reason. That’s consistent with where we were a year ago and shows that experiences still matter—even in uncertain times.

The big takeaway from all this data: Consumer sentiment is cooling, but spending—especially spending for seasonal needs—is holding up. Back-to-school categories like apparel and footwear are outperforming, making them potential bright spots for retailers.

As we head into fall, keep your eyes on U.S. consumers. They’re not just shopping for school—they’re also signaling where the market could be headed next.

Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

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