The cost of living in South Africa is expected to stay firmly elevated with headline inflation above the 6% upper limit for the remainder of the year before slowing next year.
This is according to the Inflation Expectations Survey for the first quarter of 2023 conducted by the Bureau for Economic Research (BER) at Stellenbosch University.
The 2023 first quarter survey of financial analysts, business executives and representatives of the trade union movement was conducted between February 20 and March 9.
The BER said yesterday that the average inflation expectations for 2023 and 2024 increased by 0.2 percentage points, relative to the fourth quarter of 2022.
BER economist Nicolaas van der Wath said these groups were forecasting inflation to average 6.3% in 2023 and 5.8% in 2024, before it subsides to 5.5% in 2025.
These expectations are slightly higher than the SA Reserve Bank’s (SARB) forecast of headline inflation for 2023 at 5.4%, moderating to 4.8% for 2024 before dipping to the midpoint of 4.5% in 2025.
Van der Wath said that whereas analysts foresee inflation to be at the midpoint of the SARB’s target range at 4.6% in 2025, trade unionists expected 5.8% and business people 6.2%.
The average five-year inflation expectations remained unchanged at 5.5%.
The results of the inflation expectations survey are one of many factors that the Monetary Policy Committee (MPC) of the SARB considers when it decides on the interest rate.
“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,” he said.
“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. 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. The opposite happens if inflation expectations and other indicators decline.”
Meanwhile, the survey respondents, on average, said they expected economic growth to be 1% in 2023, which is half the rate they expected a quarter earlier, before it accelerates slightly to 1.5% in 2024.
Among the three social groups, analysts on the lower end expect growth of 0.5% this year, with business people at 1% and trade union officials at 1.4% on the higher end.
Concurring with their view of lower inflation and economic growth, the survey respondents also 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.
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