South Africa's inflation expectations drop, but still far from target

Inflation expectations in South Africa declined substantially in the much awaited quarterly survey release, the first after the central bank decided to de facto lower the country's inflation target to 3%. Next year's expectations, though, are still quite distant from the new target and are not compatible with SARB's forecasts of "instant convergence", with no costs in terms of monetary restriction. I believe SARB will still have to go through many credibility tests, possibly having to raise rates amid weak economic activity to increase the probability of convergence in a not too distant future. Brazil provides a clear cautionary tale here, still struggling to anchor expectations (even under a double digit real policy rate) following a much more gradual target reduction since 2019.

  • chart, line chart
carlos eduardo goncalves

Macro economist at IMF, Visiting scholar at FGV-EESP Former University of São Paulo

1mo

nice chart, kiddo

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