Inflation expectations have decreased to a 25-year low after the inflation target was set at 3% recently, dropping by 0.5% for the next few years.
According to the Bureau for Economic Research (BER) survey, the average inflation expectations of the three professional groups in the survey subsided significantly during the fourth quarter of 2025, dropping by around ½ a percentage point for 2026 and 2027, as well as for the next five years.
The respondents now expect headline inflation to be 3.8% next year and 3.7% thereafter, which is a record low. The BER reports that this significant downward revision happened against the backdrop where the finance minister announced a new inflation target of 3%, down from a midpoint target of 4.5% previously, during the Medium Term Budget Policy Statement (MTBPS) in November.
Actual reported headline inflation moved sideways around 3.5% from the period of the third to the fourth quarter survey.
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How and why the BER measures inflation expectations
The BER measures the inflation expectations of four social groups in a quarterly survey after the South African Reserve Bank (Sarb) commissioned it in 2001 to conduct a quarterly survey to measure inflation expectations and other macro-economic variables related to inflation.
The four social groups are analysts, business people, senior representatives of trade unions and households. Four social groups are used because each group has a different perspective and effect on inflation.
Business people, for example, affect prices in the real economy, while analysts affect financial markets and trade union representatives and households, in their role as employees, affect wage increases, which in turn have a significant impact on inflation.
The Monetary Policy Committee (MPC) of the Sarb considers the results of the inflation expectations survey with other sources of information when it decides to change the repo rate.
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Different groups, different inflation expectations?
Among the professional groups in the fourth-quarter survey, business people as well as trade union officials adjusted their long-run forecasts (for two and five years ahead) down by around 0.5%, while analysts did so by only 0.3%, although they were at a lower level to start with.
Indeed, the BER says, analysts expect the lowest inflation two years from now at 3.4%, while business people anticipate it to stabilise around 4%. In the middle, trade unions foresee inflation of 3.8% in 2027.
As such, the BER points out, none of the groups expect inflation to stabilise in the long run around the new 3% target so far, but the broad-based downward shift is nonetheless remarkable.
Household inflation expectations resumed its downward trend in the fourth quarter of 2025, after a brief pause in the third quarter, with one-year expectations observed at 5.3% (5.5% previously). The BER says this is now the lowest in four years, after reaching a recent peak of 8.1% in the second quarter of 2023.
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What about wage growth and GDP?
In contrast to their lower inflation outlook during the fourth quarter, the professional groups did not downwardly revise their forecast of wage growth. They anticipate salaries to increase by 4.7% next year, which is virtually the same as the 4.8% they expected in the third quarter.
The BER found that the survey respondents expected gross domestic product (GDP) growth of 1.3% in 2026, which is very similar to the 1.2% they expected in the third quarter.
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