Africa-Press – South-Africa. South African inflation expectations have dropped dramatically following the Finance Minister Enoch Godongwana’s lowering of the inflation target, opening the door for further interest rate cuts.
According to the Bureau of Economic Research, average inflation expectations across its latest survey have dropped by half a percentage point for 2026, 2027 and the next five years.
The respondents, including trade unions, analysts, and business people, now expect headline inflation to be 3.8% next year and 3.7% thereafter – a record low.
The significant downward revision occurred against the backdrop of Godongwana lowering the inflation target in his Medium-Term Budget Policy Statement (MTBPS).
Godongwana lowered the inflation target to 3%, down from the previous midpoint target of 4.5%.
While the Finance Minister sets the target, the South African Reserve Bank (SARB) attempts to achieve it through monetary policy.
The SARB had pushed for a lower inflation target for over a year, noting that its previous 3% to 6% target range was too wide and made South Africa less competitive.
The SARB noted that a lower inflation target would lead to lower interest rates over the longer term.
In the BER’s latest survey, actual reported headline inflation remained steady at around 3.5% from the third to the fourth quarter.
The overall inflation rate remains within the one percentage point range above the 3% target, which Godongwana included due to typical economic fluctuations.
The SARB has cut interest rates by a cumulative 150 basis points to its current level of 6.75% since September 2024 amid a low inflation environment.
Experts expect further interest rate cuts in the coming years, amid the low inflation environment.
Investec Chief Economist Annabel Bishop forecasts the SARB will cut the repo rate by a cumulative 75 basis points by March 2027, bringing the repo rate down to 6% – in line with the SARB’s expectations.
What the group thinks
The professional groups, businesspeople, and trade union officials adjusted their long-run forecasts (two and five years ahead) downward by around 0.5 percentage points.
Analysts only lowered their estimates by 0.3 percentage points, but they started at a lower level to begin with.
Analysts foresee the lowest inflation two years from now, at 3.4%, while businesses expect inflation to stabilise around 4%.
“As such, none of the groups yet expect inflation to stabilise in the long run around the new 3% target, but the broad-based downward shift is nonetheless remarkable,” said the BER.
Household inflation expectations resumed their downward trend in Q4 2025 after a brief pause in Q3; one-year expectations were observed at 5.3% (5.5% previously).
Expectations are now at their lowest level in four years, after reaching a recent peak of 8.1% in the second quarter of 2023.
However, in a positive for salaries, professional groups did not downwardly revise their forecast of wage growth.
They expect salaries to rise by 4.7% next year, virtually unchanged from the 4.8% seen in Q3.
In Q4 2025, the survey respondents expected GDP growth of 1.3% in 2026, which is very similar to the 1.2% they forecast in Q3.
In the fourth quarter of 2025, the survey respondents expected GDP growth of 1.3% in 2026, which is very similar to the 1.2% they had forecasted for the third quarter.
For More News And Analysis About South-Africa Follow Africa-Press
