Households have lowered their inflation expectations, which could encourage the South African Reserve Bank to leave interest rates unchanged at the upcoming monetary policy meeting.
The Reserve Bank will announce the interest rate decision on September 23 after holding steady at 7% in July, following a 25 basis points increase in May due to the ongoing Middle East war.
Johann Els, chief economist at PSG Financial Services, said the third quarter inflation expectations survey by the Bureau for Economic Research (BER) was encouraging, with expectations either unchanged or lower across most categories.
READ: SARB keeps repo rate unchanged, warns of future hikes due to Middle East war
Households lead expected inflation decline
Household expectations recorded the most improvement, with 12-month inflation expectations dropping from 6% in the second quarter to 4.9% in the third quarter.
Five-year inflation expectations among households also declined, from 9.1% to 8.3%, with the improvement broadly spread across different income groups.
“The five-year expectations came down from 9.1% to 8.3%. And it was quite broadly based across various income groups.
“When we look at inflation expectations for analysts for the current year, that was unchanged between the second and third-quarter surveys, slightly down for 2027. And for 2028, unchanged at 3.4%. The five-year expectations were also unchanged at 3.5%,” said Els.
READ: Falling inflation welcome but affordability is the real test
Trade unions drop inflation expectations
Expectations among trade union officials that potentially influence wage negotiations are also moderated. They remained unchanged for the current year, but expectations for 2027 dropped from 4.4% to 4.1%.
Expectations for 2028 declined from 4.4% to 3.9%, while five-year expectations dropped from 4.7% to 4.3%.
“This is crucially important in terms of inflation expectations driving wage demands and, ultimately, inflation, in terms of both trade union expectations and household expectations,” Els said.
“This is very encouraging when we think of the MPC meeting coming up next week. I think the Reserve Bank will keep rates unchanged, not only because of the early rate hike in May, with many other central banks still having not moved interest rates. That very early rate hike limits the need for further rate increases, especially against the backdrop of these lower inflation expectations in the third quarter of this year.”
He said the persistence of the Middle East conflict remains a risk to the outlook, particularly because of the skyrocketing global oil prices. He said the pressures may be temporary as the decline in oil prices would provide some relief to inflation.
READ: 4.3% inflation drop might be temporary – analyst
US Federal Reserve may keep interest rate unchanged
He also expects the US Federal Reserve to keep its interest rate unchanged, although he said a different decision by the Fed would not necessarily force the Reserve Bank to follow suit.
“I do not think the Fed’s decision today will have a significant impact on the Reserve Bank. Even if the Fed hikes, I still think the Reserve Bank will keep rates unchanged,” Els said.
The BER survey also showed relatively stable expectations among professional analysts. Their inflation expectations for the current year were unchanged, while expectations for 2027 edged lower. Expectations for 2028 remained at 3.4%, with the five-year outlook unchanged at 3.5%.
- Households lowered their 12-month inflation expectations from 6% in Q2 to 4.9% in Q3, with five-year expectations dropping from 9.1% to 8.3%.
- Trade union inflation expectations for 2027 declined from 4.4% to 4.1%, and for 2028 from 4.4% to 3.9%, with five-year expectations falling from 4.7% to 4.3%.
- The South African Reserve Bank is expected to keep the interest rate unchanged at its September 23 meeting after holding steady at 7% in July.
- The ongoing Middle East conflict and rising global oil prices are risks to the inflation outlook but price declines may provide temporary relief.
- The US Federal Reserve is anticipated to keep its interest rate unchanged, with any Fed decision not likely significantly influencing the South African Reserve Bank's actions.
