The SA Daily
17 January 2020
Lower inflation expectations
Shireen Darmalingam
- The SARB reiterated in its monetary policy statement yesterday that the bank continues to attempt anchoring inflation expectations around the midpoint of the bank’s inflation target. According to the Bureau for Economic Research, inflation expectations in Q4:19 declined across all social groups. The average for 2020 slipped from 5.2% in Q1:19 to 4.8% in Q4:19; the average for 2021 slid from 5.3% in Q4:18 to 5.0% in Q4:19. Business people have had the biggest downward revision to their expectations; trade unions too have trimmed forecasts for 2019 and 2020, albeit only marginally.
- The steady decline in inflation expectations is therefore encouraging, as it now approaches the midpoint of the bank’s inflation target. Indeed, average inflation expectations have been declining steadily since 2017.
- Inflation has moderated substantially since its peak of 6.6% in January 2017, with a low of 3.6% y/y in November 2019. December inflation, due out next week, is expected to have increased to 4.1% y/y, from 3.6% y/y in November. For the year, inflation is expected to have averaged 4.1%, still comfortably within the target. A lack of significant currency depreciation underpins a benign inflation prognosis, with elevated administered tariff increases and modestly higher food inflation the only noteworthy inflation drivers in 2020. We expect CPI to remain comfortably within the 3-6% target at an average of 4.4% this year, then increase to 4.6% in 2021. The SARB has downwardly revised its inflation outlook to average 4.1% in 2019 and 4.7% in 2020.
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