The latest inflation expectations survey run by the Bureau for Economic Research (BER) shows that all sectors of society in South Africa expect higher inflation to stick around for longer – while expectations for wage and salary increases have tracked lower.<\/p>\n
The BER survey is run quarterly and gauges the views of key sectors in the economy, including views from analysts, unions, households and businesses.<\/p>\n
The survey was commissioned by the South African Reserve Bank in 2001, and forms part of the vast array of data the central bank’s Monetary Policy Committee (MPC) looks at when modelling its inflation data and, subsequently, its approach to interest rates.<\/p>\n
The four groups are polled because each has a different perspective and impact on inflation, the BER said.<\/p>\n
“For instance, business people affect prices in the real economy, while analysts affect financial markets. In contrast, trade union representatives and households \u2013 in their role as employees \u2013 affect wage increases, which, in turn, have a big impact on inflation,” it said.<\/p>\n
The MPC will be concerned if inflation expectations increase, inflation expectations are significantly above the midpoint of the inflation target range of 3% to 6% and\/or the other inflation indicators deteriorate.<\/p>\n
Rising inflation expectations may, for example, lead to higher wage demands as workers feel they need to be compensated for the higher expected inflation in future.<\/p>\n
Businesses may also adjust their price increases upwards if demand is robust enough. To prevent higher expectations from becoming a reality, the SARB may be forced to increase the interest rate.<\/p>\n
The BER said the opposite happens if inflation expectations and other indicators decline.<\/p>\n
Across all respondents, the inflation expectations for the first quarter of 2023 have tracked higher – meaning that the prevailing view is that inflation will be sticking at higher values for longer.<\/p>\n
The average inflation expectations of analysts, business people and trade unions for 2023 and 2024 increased by 0.2 percentage points (% pts) relative to the fourth quarter of 2022.<\/p>\n
They forecast inflation to average 6.3% in 2023 and 5.8% in 2024. Thereafter, the respondents expect inflation to subside to 5.5% in 2025.<\/p>\n
Whereas analysts foresee inflation to be 4.6% (i.e., at the midpoint of the SARB\u2019s inflation target range) in 2025, trade unionists expect 5.8% (just below the upper limit) and business people 6.2% (still above the upper limit).<\/p>\n
Average five-year inflation expectations remained unchanged at 5.5%.<\/p>\n
Households, however, have an even more pessimistic outlook, with one-year-ahead inflation expectations jumping from 6.3% to 7.0%. Likewise, their five-year expectations soared from 8.4% to 9.9%.<\/p>\n
The survey respondents, on average, also expect economic growth to be lower in 2023, at just 1.0%. This is half the rate they expected a quarter earlier. They anticipate that economic growth will accelerate slightly to 1.5% in 2024.<\/p>\n
Among the three social groups, on the lower end, analysts expect growth of 0.5% this year, with business people at 1.0% and trade union officials at 1.4% on the higher end.<\/p>\n
Concurring with a wider view of lower inflation and economic growth, the survey respondents have lowered their average forecast of salary and wage increases for this year. They now expect an increase of 5.3%, compared to 5.9% before<\/strong>.<\/p>\n However, this comes in below the expectations for inflation for the year (5.9% versus 6.3%).<\/strong><\/p>\n The survey was conducted between 20 February and 9 March 2023, and the results were computed on 10 March 2023.<\/p>\n The SARB’s MPC is expected to decide on rates at the end of the month (30 March), with markets anticipating another 25 basis point hike.<\/p>\n
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