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.
South Africa's inflation expectations drop, but still far from target
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Macro economist at IMF, Visiting scholar at FGV-EESP Former University of São Paulo
1monice chart, kiddo