South Africa’s inflation expectations stabilised in the third quarter of 2026 after rising sharply in the previous quarter following the global energy shock linked to the US-Iran conflict.
The latest quarterly inflation expectations survey shows that financial analysts, business executives and trade union officials expect headline consumer inflation to average 4.4% in 2026, unchanged from the second quarter.
Longer-term expectations improved slightly, with forecasts for 2027 and 2028 declining to 4.0% and 3.8%, respectively.
Key Overview
The survey provides an important input into monetary-policy decisions because changes in interest rates typically affect inflation and economic activity with a delay.
South Africa now operates under a 3% inflation target with a one-percentage-point tolerance band, meaning the formal tolerance range extends from 2% to 4%. The central bank has stressed, however, that 3% remains the objective rather than treating every inflation rate inside the band as equally desirable.
The latest results therefore show that professional expectations are moving closer to the target over time, although forecasts remain above 3% across the surveyed horizons.
Longer-Term Inflation Expectations Edge Lower
Average expectations for 2027 inflation declined to 4.0% from 4.2% in the previous quarter, while the 2028 forecast fell to 3.8% from 3.9%.
Expectations for average inflation over the next five years also eased to 4.0% from 4.1%.
There are notable differences between respondent groups. Analysts expect inflation to fall to 3.4% by 2028, closer to the central bank’s target, compared with expectations of 4.2% among business respondents and 3.9% among trade union officials.
Five-year expectations from trade unions recorded the largest decline, falling from 4.7% to 4.3%. Analysts maintained their five-year forecast at 3.5%, while business expectations edged higher from 4.1% to 4.2%.
These figures suggest that the sharp deterioration in sentiment seen during the second quarter did not continue into Q3.
Household Inflation Expectations Fall Sharply
The improvement was more pronounced among South African households.
Households’ expected inflation over the next 12 months fell from 6.0% to 4.9%, reaching its lowest level in nearly five years.
Five-year household expectations also declined significantly, falling to 8.3% from 9.1%.
The reduction was visible across income groups. High-income households lowered their 12-month expectation from 6.1% to 5.4%, while lower-middle-income households reduced their forecast from 5.6% to 4.7%.
Household expectations remain substantially higher than those of professional forecasters, but the Q3 decline reverses much of the increase recorded during the previous quarter.
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Actual Inflation Slows to 4.3%
Official consumer-price data also showed an improvement before the survey’s release.
South Africa’s annual consumer inflation slowed to 4.3% in July from 5.0% in June, marking the first decline in the headline rate in five months.
The monthly CPI increase was 0.2%, compared with 0.7% in June. Softer food inflation, lower municipal tariff increases and declining fuel prices contributed to the slowdown.
Food and non-alcoholic beverage inflation fell to just 0.9%, its lowest reading in more than 16 years.
Despite July’s improvement, headline inflation remained above the central bank’s 3% target and slightly above the upper edge of its 2%-4% tolerance band.
Interest Rates Remain at 7%
The central bank increased its policy rate by 25 basis points to 7.0% in May, responding to higher inflation risks associated with energy and food-price shocks.
At its July monetary-policy meeting, policymakers kept the rate unchanged at 7%. Four committee members supported holding rates steady, while two preferred another 25-basis-point increase.
The bank said the policy stance remained somewhat restrictive and that the outlook continued to carry upside inflation risks.
The Q3 survey provides policymakers with evidence that longer-term expectations have not continued to deteriorate following the second-quarter shock, although professional forecasts remain above the 3% target.
September Rate Decision Comes Next
Attention now turns to the next interest-rate announcement scheduled for September 23.
The central bank has explained that monetary-policy changes generally take 12 to 24 months to work fully through the economy, making future inflation expectations particularly important when determining the appropriate level of interest rates.
The survey also shows that professional respondents still expect the prime overdraft rate to be around 10.5% at the end of 2026, while anticipating lower rates during 2027.
GDP growth expectations remain subdued. Respondents forecast South Africa’s economy to grow by 1.2% in 2026 and 1.6% in 2027, reinforcing the balancing challenge between controlling inflation and avoiding unnecessary pressure on economic activity.
For policymakers, the stabilisation in inflation expectations offers a more favourable backdrop than in the second quarter, but the September decision will still depend on incoming inflation data, global energy developments and the broader balance of risks facing the South African economy.
Sources
Bureau for Economic Research / South African Reserve Bank / Statistics South Africa / Reuters
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