Inflation expectations
The Bureau for Economic Research (Stellenbosch University) second-quarter inflation expectations survey shows an increase in expected inflation, broadly in line with what one would expect given higher petrol prices at the time. The survey was conducted between 18 May and 4 June, when oil prices were around $100 per barrel. As expected, inflation expectations moved higher.
Union inflation expectations for the current year increased from 3.8% in Q1 to 4.3% in Q2. More importantly, expectations further out also shifted higher: for 2027, from 3.8% to 4.5%, and for 2028, from 3.7% to 4.4%. These levels are higher than those of analysts, where there is likely more emphasis on base effects and the expectation that oil prices would moderate.
While these union expectations are somewhat concerning from a Monetary Policy Committee (MPC) perspective, it is important to note that the oil price environment has changed meaningfully since the survey period. Oil prices have fallen from around $100 per barrel during the survey window to about $74 currently.
July petrol price changes
On the domestic side, the July fuel price adjustments confirm a decline in petrol prices of R2.01 per litre and diesel prices of R3.14 per litre. The return of the fuel levy to normal levels has already been incorporated in these figures. The decline is slightly larger than expected, also reflecting a 44 cents per litre reduction in the slate levy.
Taken together, these fuel price developments should help ease near-term inflation pressure. After peaking in June—likely around 4.8% (following 4.5% in May)—CPI inflation should ease back to around 4.2%–4.3% in July.
Interest rate outlook
The SARB remains forward-looking and will be mindful of the rise in inflation expectations. However, having already pre-emptively hiked rates at the last MPC meeting, I do not expect further increases in July. The Committee is more likely to adopt a wait-and-see approach and assess the full impact of recent policy actions and the evolving energy price environment.
The third-quarter inflation expectations survey is likely to show some moderation, reflecting lower oil prices and the recent decline in fuel prices experienced by households and firms.
Overall, while inflation expectations have risen as expected, the change in the external environment—lower oil prices, a stable rand, and easing fuel inflation—suggests that inflation should peak in June and then gradually decline from July onwards. This should keep the MPC on hold in July.
If these conditions persist, there is a growing likelihood that the SARB could begin considering rate cuts from around November onwards into 2026. That said, this remains data-dependent, particularly on inflation expectations and global oil dynamics.
Our own forecast is for inflation of 4.0% this year, 3.2% next year, and 3.0% in 2028, which would support further gradual policy easing over time.
Written by Johann Els, Chief Economist at PSG Financial Services