South Africa’s inflation expections revealed

In the first quarter of 2023, the average inflation expectations of analysts, business people and trade unions for 2023 and 2024 increased by 0.2 percentage points relative to expectations in the fourth quarter of 2022.

This data is based on a survey from the Bureau of Economic Research (BER) on inflation expectations in South Africa.

The survey forecasts inflation to average 6.3% in 2023 and 5.8% in 2024. The respondents expect inflation to subside to 5.5% in 2025.

Whereas analysts foresee inflation to be 4.6% – at the midpoint of the SARB’s inflation target range – in 2025, trade unionists expect 5.8% and business people 6.2%.

Average five-year inflation expectations remained unchanged at 5.5%.

Households’ one-year-ahead inflation expectations jumped from 6.3% to 7.0%. Likewise, their 5-year expectations soared from 8.4% to 9.9%.

Economic growth will remain pedestrian

The survey respondents, on average, expect economic growth to be 1.0% in 2023, which is half the rate they expected a quarter earlier. They anticipate that economic growth will accelerate slightly to 1.5% in 2024.

Among the three social groups on the lower end, analysts expect growth of 0.5% this year, with business people at 1.0% and trade union officials at 1.4% on the higher end.

Expectations of low growth are echoed by the South African Reserve Bank (SARB).

Rashad Cassim, deputy governor of the South African Reserve Bank, warned that they expect “disastrously low” economic growth rates for the next three years.

“Our growth rate also compares very badly to the historical record. Since the 1960s, South Africa has, on average, managed to grow by about 2.8% a year,” Cassim said.

“This is around four times the average growth rate for our forecast and the past ten years. This feeble growth outlook is also related to other social ills, including our 33% unemployment rate.”

SARB committed to reducing inflation

SARB Governor Lesetja Kganyago confirmed the experts’ predictions at the start of this year.

Speaking to CNBC Africa at the World Economic Forum’s annual meeting in Davos, he said the SARB would continue to increase interest rates for as long as inflation falls outside the target band.

He said inflation increased like a rocket over the last year but declined much slower despite regular interest rate hikes.

However, while SARB may be gaining the upper hand on inflation, risks like power outages that add to food production costs and doing business mean Kganyago is reluctant to pivot away from policy tightening.

“What we need to see is inflation declining firmly to within the inflation targeting range of 3% to 6%,” he said.


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