Inflation expectations in South Africa may have dropped, but they are still above the South African Reserve Bank’s target, meaning that interest rate cuts may be harder to implement.
One year ahead, households’ inflation expectations continued to trend lower. They reached 6.1%, far below the recent peak of 8.1% a year ago. “The MPC will be concerned if inflation expectations increase, inflation expectations are significantly above theand/or the other inflation indicators deteriorate,” said the BER.
Although average inflation expectations for this year have decreased to 5.3%, this is still well above the SARB’s midpoint target of 4.5% Nedbank’s economists expect 25 basis point cuts in September and November, while Investec Chief Economist Annabel Bishop expects the first 25bps cut will occur in November.