Good news for interest rates in South Africa

The average inflation expectations of analysts, business people and trade unions declined again in the third quarter of this year.

This was revealed in the Bureau for Economic Research’s (BER) third-quarter Inflation Expectations Survey.

The South African Reserve Bank (SARB) commissioned the BER to conduct a quarterly survey to measure inflation expectations and other macroeconomic variables related to inflation.

Four social groups are covered: analysts, businesspeople, senior representatives of trade unions, and households.

This is done because each group has a different perspective and impact on inflation. 

For example, business people affect prices in the real economy, while analysts affect financial markets. In contrast, trade union representatives and households – in their role as employees – affect wage increases, which, in turn, have a big impact on inflation. 

The results of the inflation expectations survey are one of many factors that the Monetary Policy Committee (MPC) of the SARB considers when it decides on the interest rate.

The MPC will be concerned if inflation expectations increase, inflation expectations are significantly above the midpoint of the inflation target range of 3% to 6%, or the other inflation indicators deteriorate.

This year’s third-quarter survey showed that the average inflation expectations of three of the groups – analysts, business people and trade unions – declined. 

They now expect headline inflation to be 5.1% this year before subsiding to 4.8% in both 2025 and 2026. 

In the second quarter, they still expected consumer inflation to register 5.3% this year and fall to 4.9% in 2026. 

Among the three social groups, analysts expect the lowest inflation rate over the entire forecast horizon, although trade union officials are not far above them. 

In contrast, business people anticipate that inflation will remain above 5% for all three years, softening from 5.4% this year to 5.2% in 2026.

Overall, the three social groups expect inflation to average 4.8% over the next five years. This is slightly lower than the 4.9% they expected before. 

However, in this case, only analysts expect a rate close to the target of 4.5%. Trade union officials, like business people, foresee a rate of around 5%.

In contrast to the three other groups, household inflation expectations turned significantly higher during the third quarter survey, ending the downward trend that started in mid-2023.

One-year-ahead expectations picked up by 0.6% pts to 6.9%, the highest this year. Five-year-ahead expectations increased by 0.9% pts to 10.6%, the highest since the second quarter of 2023.

During the third quarter survey, the three social groups still expected GDP growth of just below 1% in 2024. However, they revised their forecast for next year up by 0.2% pts to 1.5%.

Trade unions made a huge upward revision to their forecast of wage increases. They now expect wages to rise by 5.6% in 2024 and by 5.9% in 2025. 

Consequently, the average forecast for 2025 increased slightly from 4.9% to 5.0%, while that for 2026 increased from 4.9% to 5.3%.

Below is a summary of the third-quarter Inflation Expectations Survey results. It shows the different social groups’ expectations for headline CPI inflation during the year.

Year	Analysts	Business people	Trade union officials	Average
2024	4.8%	5.4%	5.0%	5.1%
2025	4.4%	5.3%	4.7%	4.8%
2026	4.5%	5.2%	4.6%	4.8%