South Africa

Good news for inflation and interest rates

Expectations for inflation in 2024 dropped in the first quarter of this year, spelling good news for potential interest rate cuts.

The Bureau for Economic Research released the findings of its inflation expectations survey for Q1 2024 today.

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.

The first quarter survey showed that the average headline CPI inflation expectations of analysts, business people and trade union officials receded by 0.3 percentage points for both 2024 and 2025. 

The respondents now expect inflation to average 5.4% this year, 5.3% next year and 5.2% in 2026. 

Among the three groups, only analysts expect that inflation will subside to below 5% and stabilise at 4.7% in 2025 and 2026. 

Business people and trade union officials foresee inflation getting stuck above 5%, even in 2026.

Regarding the five-year inflation expectations, on average, the respondents lowered their view slightly from 5.2% to 5.1%. 

This is the fourth consecutive quarter that the forecast is stuck at just above 5% after initially declining from a recent peak of 5.6% in the second quarter of 2022.

One year-ahead inflation expectations of households edged down in the first quarter of 2024. It declined from 7.2% in the fourth quarter to 6.7%. 

In contrast, their five-year-ahead inflation expectations increased from 10.2% to 10.4%. This upward revision was mostly due to low-income households who changed their view.

During the first quarter survey, the three social groups, on average, forecast economic growth to be only 0.8% in 2024. This is 0.5 percentage points lower than they expected in the previous quarter. 

The three groups anticipate that growth will accelerate to 1.1% next year, though they have divergent views, as only analysts expect growth above 1% in 2025.

The three groups are in general agreement that salaries and wages will increase by around 5% in both 2024 and 2025. 

Their view is unchanged for this year (5.1%) compared to what they expected before.

The results of this survey come as the SARB’s Monetary Policy Committee (MPC) is gearing up to make a decision on South Africa’s interest rates for its next meeting on 27 March 2024.

Many experts expect that South Africa will see interest cuts in the second half of the year and only after the national election in May.

SARB Commissioner Lesetja Kganyago has said South Africans should prepare for higher interest rates for longer, as the MPC will only consider cutting once inflation has sustainably come down and is anchored around the mid-point of its target range, 4.5%.

Source: BER Inflation Expectation Survey Q1 2024

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