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Corporate and Investment Bank
Standard Bank Group
17 July 2019

Soft inflation, and a cut

Shireen Darmalingam

  • In Q1:19, inflation expectations declined across all social groups. The average for 2019 slipped from 5.4% in Q4:18 to 4.8% in Q1:19; the average for 2020 slid from 5.4% in Q4:18 to 5.2% in Q1:19.
  • Ahead of the SARB’s rates meeting tomorrow, the Q2:19 BER inflation expectations survey will be released. With inflation ever softer, the SARB is largely expected to cut the repo rate by 25 bps, to 6.5%.
  • The steady decline in inflation expectations is encouraging as it now approaches the midpoint of the inflation target of 4.5%. Average inflation expectations have been declining since 2017. Q1:17 average inflation expectations were 6% for 2019. The SARB wants to anchor expectations around 4.5%.
  • Inflation has moderated substantially since 2017, with a low of 3.8% y/y in March 2018. In January this year, CPI was 4.0% y/y. We expect CPI to remain comfortably within the 3-6% target at an average of 4.4% this year, then 4.7% in 2020. The SARB expects CPI to average 4.5% in 2019 and 5.1% in 2020.
  • Across social groups, business people have had the biggest downward revision to their expectations; trade unions too have trimmed forecasts for 2019 and 2020.

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