South African inflation expectations have dropped significantly across all forecast horizons, potentially providing the Reserve Bank with additional room for interest rate reductions.
The latest quarterly survey revealed that analysts, business leaders, and trade unions substantially lowered their inflation projections, with the average 2025 forecast falling to 3.9 percent from 4.4 percent in the previous quarter.
This marks the first time in more than four years that current-year inflation expectations have fallen below the 4 percent threshold, signaling growing confidence in price stability prospects.
For 2026, average inflation expectations decreased to 4.3 percent from 4.6 percent in the first quarter, while 2027 projections dropped to 4.5 percent from 4.7 percent, indicating sustained optimism about medium-term price stability.
The South African Reserve Bank, which commissions these quarterly surveys, incorporates inflation expectations into its monetary policy decision-making process. These improved expectations could influence future interest rate policies.
“The second-quarter survey reflects a broad-based and significant decline in inflation expectations. This decline was present among all three social groups and for the entire forecast horizon,” reported the Bureau for Economic Research, which conducts the survey.
The SARB targets inflation within a 3-6 percent range but has been advocating for a lower target, expressing preference for a 3 percent objective during its last policy meeting in May when it reduced the key lending rate by 25 basis points to 7.25 percent.
Consumer inflation reached 2.8 percent year-on-year in May, marking the third consecutive month below the 3 percent threshold. This sustained low inflation environment supports the case for continued monetary easing.
The central bank’s next monetary policy announcement is scheduled for July 31, with market participants closely monitoring whether these improved inflation expectations will influence rate decisions.
However, the survey also revealed increased pessimism about economic growth prospects, with respondents expecting 0.9 percent growth for 2025 compared to 1.2 percent predicted in the previous survey.
This downward revision in growth expectations reflects concerns about South Africa’s economic performance, particularly following the disappointing 0.1 percent expansion in the first quarter of 2025.
The economy’s poor performance was attributed to weak mining and manufacturing sector output, highlighting ongoing structural challenges that constrain growth potential.
The combination of lower inflation expectations and reduced growth projections creates a complex policy environment for the Reserve Bank, balancing price stability objectives with economic growth support requirements.
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