Inflation expectations ease to 3,8% before SARB's 23 September rate call
The Bureau for Economic Research's quarterly survey gives the Reserve Bank a little more room, with markets still split on whether the repo rate moves.
South Africa’s inflation expectations eased in the third quarter, giving the Reserve Bank slightly more room to breathe before its next interest-rate decision on Wednesday, 23 September.
Average expectations for inflation two years ahead slipped to 3,8% from 3,9% in the previous quarter, according to the quarterly survey by the Stellenbosch-based Bureau for Economic Research. Longer-term forecasts moved the same way. Expectations for headline inflation in 2027 came down to 4,0% from 4,2%, and for 2028 to 3,8% from 3,9%.
As The South African reported on 17 September, that is the good news the central bank was looking for ahead of the meeting.
Why the Reserve Bank watches this number so closely
The Reserve Bank does not set interest rates on today’s inflation alone. It sets them on what people expect inflation to be tomorrow, because expectations feed straight into the economy. If unions expect prices to rise, they bargain for bigger wage increases. If businesses expect costs to climb, they price their goods accordingly. Both moves push prices up, and the bank then has to answer with higher rates.
That is why the BER survey lands on the Monetary Policy Committee’s desk as one of the more important pieces of data in the cycle. The bank has also said it wants inflation to settle towards its 3% goal, which is lower than the 4,5% midpoint of the target band that has guided policy for years.
The repo rate has stood at 7% since May, when the committee raised it by 25 basis points, and it was left unchanged at the July meeting. The prime lending rate sits at 10,5%. Both figures are the ones that reach a household with a bond, a car instalment or a credit card balance.
The economy the committee is looking at is not growing
The expectations data arrive against a weak growth picture. The economy contracted by 0,2% in the second quarter, ending a run of six consecutive quarters of growth.
Consumer inflation itself has been moderating. It reached 5% in June before easing to 4,3% in July.
But the risks have not gone away. The conflict in the Middle East has pushed energy costs higher, and more expensive oil and fertiliser feed through into transport, food and the wider basket of consumer prices. Reserve Bank governor Lesetja Kganyago has described the problem as multiple overlapping shocks, and the bank has warned about the danger of second-round effects, where an initial price rise is baked into wages and contracts and becomes harder to remove.
What the market thinks, and what it means for you
Financial markets are not convinced the hiking cycle is finished. Forward-rate agreements were pricing a roughly 52% probability of a 25 basis point increase, down from 56% a day earlier. That is close to a coin toss, and it tells you the committee’s decision is finely balanced.
For a household, the difference is concrete. On a R1 million home loan over 20 years, a 25 basis point move on the prime rate changes the monthly instalment by roughly R160. For a small business carrying overdraft or equipment finance, the same move raises the cost of every rand borrowed.
What the BER survey does is tilt the argument slightly towards holding. Lower expectations reduce the case for pre-emptive tightening, and the weak second-quarter growth number gives the committee a reason to wait and see. Against that sit energy prices, the rand and the conflict-driven cost pressures that the bank cannot control.
The Monetary Policy Committee announces its decision on Wednesday, 23 September. Its final meeting of the year is scheduled for 19 November.
Source: The South African, Some good news for interest rates in South Africa
