By By By Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano & Ame Muller
The latest BER Inflation Expectations Survey has strengthened the case for a cautious monetary policy stance. Following the South African Reserve Bank's (SARB's) 25-basis point (bp) repo rate hike in May, the 2Q26 survey results suggest that policymakers will need to assign more effort to guiding inflation expectations towards the new target. This is as the acceleration in expectations reinforces concerns that the recent energy-price shock could become more persistent if it feeds into wage bargaining, price-setting behaviour and broader inflation psychology.
The deterioration was broad-based. Average inflation expectations among analysts, business and trade unions rose to 4.4% for 2026, from 3.6% in the 1Q26 survey. Expectations also increased to 4.2% for 2027, 3.9% for 2028, and 4.1% over the next five years. This matters because the SARB's preferred inflation target is now 3%, and the latest survey shows that expectations have moved further away from that objective over the medium term. Considering the expectations of price-setters alone, who are generally less influenced by inflation-targeting frameworks than analysts, expectations have not only drifted above the SARB's upper tolerance level of 4% but are also expected to remain elevated for a sustained period. Therefore, this set of results will be negative for a central bank seeking to firmly anchor future inflation at lower levels.
Household expectations are arguably even more concerning, as 12-month inflation expectations rose from 5.4% to 6.0%, while five-year expectations increased from 8.4% to 9.1%. Although household expectations tend to be higher and more backward-looking than those of professional forecasters, they remain important because they influence perceptions of purchasing power, wage demands and spending behaviour. Should households and workers begin to view higher fuel and food prices as a persistent feature of the inflation environment, the risk of expectations becoming further de-anchored would increase. In such a scenario, the SARB may be compelled to adopt a more cautious policy stance to safeguard its inflation-fighting credibility and reinforce its commitment to price stability.
There are, however, important offsets. Wage growth expectations increased only marginally to 4.8% for both 2026 and 2027, suggesting that the inflation shock has not yet translated into a meaningful wage-price dynamic. That said, a persistent deviation from target warrants caution from a unit labour cost perspective. At the same time, growth expectations weakened, with expected GDP growth for 2026 revised down from 1.5% to 1.2%. This combination points to a difficult policy trade-off: inflation risks have risen, but underlying demand conditions remain subdued.
The policy implications are therefore less clear cut than the headline acceleration in inflation expectations may suggest. While the survey results capture the impact of elevated oil prices following the Middle East conflict and appear to validate the SARB's concerns about potential second-round inflationary effects, oil prices have since retraced pre-war levels. Therefore, some of the inflation concerns underpinning the survey may ultimately prove temporary.
Nevertheless, these results highlight that inflation expectations remain vulnerable to external shocks, which have worsened the deviation from the SARB's preferred 3% target. As a result, the survey is likely to reinforce the SARB's cautious and data-dependent approach. While lower oil prices and moderating inflation could eventually reopen the door to policy easing, the increase in inflation expectations raises the hurdle for near-term rate cuts. More broadly, the survey serves as a reminder that the process of anchoring inflation expectations around 3% remains incomplete, even as the broader disinflation trend remains intact. So, even if the SARB decides not to respond via the policy rate, their language will remain hawkish, as they seek to reinforce commitment to lower and more firmly anchored inflation.
Week in review
Private Sector Credit Extension (PSCE) growth slowed to 8.6% year-on-year (y/y) in May, from 9.2% in the previous month. The moderation was driven by a slowdown in corporate credit growth, which eased from 13.0% in April to 11.8% in May. This reflected weaker growth in general loans and advances (from 19.1% to 15.8%), partly offset by an acceleration in commercial mortgage lending from 7.1% to 7.8%. Meanwhile, household credit continued its gradual recovery, edging up to 4.7% from 4.6%, supported by modest gains in vehicle and mortgage finance.
The trade balance recorded a deficit of R1.8 billion in May from a surplus of R14.4 billion in April. This marked the first monthly deficit since January 2025 when a deficit of R16.8 billion was recorded. May's deficit reflected a decline of 5.7% month-on-month (m/m) in exports to R178.8 billion and a 3.1% monthly increase in imports to R180.6 billion. Despite this, the year-to-date trade balance was still robust at R85.8 billion in May compared to R60.1 billion in the corresponding period last year. We expect the current account balance to remain contained but widen modestly this year amid subdued exports growth. Weak domestic demand, including subdued private sector fixed investment, together with still supportive terms of trade should continue to underpin the current account balance.
The Quarterly Employment Statistics (QES), an enterprise-based survey covering formal businesses in all sectors except for agriculture, showed 1Q26 employment losses to the tune of 80 000 jobs compared to 4Q25 and 121 000 jobs compared to 1Q25. Most of the quarterly losses were in the community services and trade sectors, while business services and manufacturing added the most jobs. That said, employment levels remain above end-2019 levels and highlight the gradual recovery that has taken shape in the labour market. Gross incomes recovered much faster and while the momentum from 4Q25 has stalled, with a 4.0% drop, annual income growth of 5.2% has outpaced inflation. Ultimately, the drop in employment levels aligns with the household-based survey (Quarterly Labour Force Survey) outcome that emphasised the limited ability of a low-growth economy to generate job opportunities at scale. Unfortunately, this is not a supportive backdrop for a 2Q26 that faces war-driven headwinds.
The Manufacturing Purchasing Manager's Index (PMI) declined from 50.8 index points in May to 47.3 in June. Notably, the May outcome was supported by pre-emptive purchases in anticipation of higher costs as well as supply disruptions. Seemingly, these tailwinds reversed in June as an improved outlook on input costs delayed orders. In line with this, the Purchasing Price Index fell by 13.5 to 71.3 points and new sales orders eased from 44.6 to 40.6 points. While business activity ticked up to 45.6 from 43.5 points, it remained in negative territory. This, alongside destocking, suggests that manufacturing output will remain under pressure. On a more positive note, sentiment on near-term activity is upbeat at 56.6 points.
Total new vehicle sales grew strongly by 15.3% y/y in June to 54 482 units, following growth of 12.6% in May. This marked the strongest June sales performance since 2007 despite mounting economic headwinds. Growth in sales was broad-based with all segments recording growth. Passenger car sales increased by 18.1% to 38 393 units. Meanwhile Light Commercial Vehicle sales increased by 8.4% and Medium Commercial Vehicles, by a modest 0.6%. Heavy trucks and buses increased by 15.9% to 2 271 units. The domestic vehicle market has reflected remarkable resilience despite a challenging economic environment. Total vehicle sales were up by 13.0% during the first six months of the e year.
Electricity production fell further by 9.0% y/y in May after falling by 8.7% in April. On a seasonally-adjusted basis, production increased by 0.6% m/m after falling by 1.7% in the previous month. Unfortunately, the broader trend shows weakness in the sector, with production down 2.2% over the past three months relative to the prior three-month period. This suggests that electricity production could weigh on 2Q26 GDP.
Weekly Round-Up: Economics from Broader Africa
