South Africans’ inflation expectations have dropped to their lowest level on record, offering a promising signal for monetary policy credibility just weeks after the Reserve Bank announced it prefers targeting inflation at the lower end of its target band.
According to the third-quarter Inflation Expectations Survey, conducted by the Bureau for Economic Research (BER), released on Monday, the average expectation for headline inflation over the next five years has fallen to 4.2%, from 4.4% in the previous quarter. This marks the lowest five-year forecast on record.
The decline, driven by downward revisions from analysts and trade union officials, comes after the Bank’s announcement in late July that it would now target 3.0% inflation as its anchor, a departure from the long-standing 4.5% midpoint of its 3%-6% range. Business executives, however, left their long-term inflation forecasts unchanged.
While the Bank’s shift in the preferred target probably played a role, the decline in long-term expectations reflects a broader trend that began in early 2024, according to the BER.
Among the groups surveyed in the BER survey, analysts forecast inflation to average 3.6% over the next five years, while trade union officials revised their estimate to 4.3% and business people held steady at 4.5%.
- Analysts’ 5-year forecast: 3.6%
- Trade unions’ forecast: 4.3%
- Business forecast: 4.5%
- Household expectation: 5.5%
- 2025 inflation: 3.8%
- 2026 inflation: 4.2%
- Wage growth (2025): 4.7%
- Wage growth (2026): 4.8%
- GDP growth (2025): 0.8% (previously 0.9%)
- GDP growth (2026): 1.2%
- Analysts’ 2026 GDP forecast: 1.4%
- Business 2026 GDP forecast: 0.9%
Expectations for near-term inflation (2025 and 2026) also edged down modestly by 0.1 percentage points, averaging 3.8% and 4.2%, respectively. However, household expectations remain significantly elevated, stuck at 5.5%, indicating a potential dislocation between institutional sentiment and consumer experience.
In a notable development, expectations for salary and wage increases also softened. Respondents now expect wage growth of 4.7% in 2025 and 4.8% in 2026, down from previous forecasts of 4.9% and 5.1%. This is consistent with lower inflation expectations.
However, optimism around economic growth remained subdued. Average expectations for real GDP growth in 2025 were revised down marginally to 0.8% (from 0.9% previously), with a slight improvement to 1.2% for 2026.
Analysts remain more optimistic about SA’s growth trajectory, forecasting GDP growth of 1.4% in 2026 compared to just 0.9% by business people.
The survey’s release comes just three days before the next monetary policy committee (MPC) announcement.
While inflation has hovered close to the Reserve Bank’s new 3% target, the softening in expectations could ease pressure on the Bank to keep policy restrictive. Still, policymakers remain cautious, given global uncertainty, sticky food and fuel prices, and SA’s fragile domestic recovery.
Consumer inflation data for August will be released on Wednesday, with economists expecting it to remain broadly stable at 3.5%-3.8% year on year, as food prices and municipal tariffs pose some upside risk.
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