South African inflation expectations declined for the first time in two years, suggesting price-pressures have peaked and the central bank will be able to keep interest rates on hold.
Average inflation expectations for this year fell to 6.1% in the third quarter from 6.5% previously, according to a survey released on Monday by the Stellenbosch-based Bureau for Economic Research. The rate of price growth for 2024 is now seen declining to 5.5% from 5.9% and to 5.3% from 5.6% in 2025, according to participants in the poll of analysts, business people, labour unions and households.
“It was the first drop in average 2023 expectations in two years,” BER said. “Lower expectations were also evident over the entire forecast horizon — 2023 to 2025 — and mostly due to downward revisions by business people and trade unionists,” it said in a statement published on its website. The expectations were slightly above the central bank’s average inflation forecasts of 6% for this year, 5% for next and 4.5% in 2025.
The survey results influence decision making by the South African Reserve Bank’s monetary policy committee, which prefers to anchor inflation expectations close to the 4.5% midpoint of its target range. Its preferred indicator for medium-term inflation expectations is two-years-ahead.
The rate of price growth has dropped for four straight months to 4.7% and is nearing the midpoint, which it has exceeded since May 2021.
The central bank’s MPC has raised the key interest rate by a combined 475 basis points to 8.25%, at 10 straight meetings to contain inflation, before pausing in July.
Governor Lesetja Kganyago has repeatedly said that the job to combat inflation is not yet done. “The arrival of one swallow does not mean that summer is here, we need to see a couple more,” he said last month. Concerns he has highlighted include core goods inflation, price setters’ inflation expectations and currency weakness.
Forward-rate agreements starting in a month — used to speculate on borrowing costs — are pricing no chance of a rate increase at the central bank’s upcoming September 21 MPC meeting. The yield on rate-sensitive 2026 government bonds dipped two basis points to 8.99%
Average five-year inflation expectations fell to 5.1% from 5.2%, the BER said. The survey was conducted between August 14 and August 31.