The South African Reserve Bank published a working paper assessing private sector inflation expectations over 25 years of inflation targeting from 2000 to 2025. The study finds that expectations progressed from weak anchoring in the first decade to stability around the former 6% upper bound, before gradually moving toward the 4.5% midpoint after the bank communicated that preference in 2017. The 2021–2023 inflation surge caused only a temporary drift, followed by renewed stability as inflation normalized in 2024 and 2025. The paper evaluates expectations among firms, financial analysts and trade unions across five characteristics. It finds that distribution measures, including dispersion and the probability of expectations moving above or below an anchored range, provide the most useful early warnings, while forecast revisions and links between short and longer term expectations are better suited to ex post assessment. Analysts generally had more stable expectations than firms and unions, which showed greater vulnerability during shocks. Expectations across all three groups began moving toward the new 3% target in 2025, although firms adjusted more slowly, and the paper identifies continued declines in dispersion and upside risk as key indicators of successful anchoring.
South African Reserve Bank study finds inflation expectations increasingly anchored after temporary pandemic drift
A South African Reserve Bank working paper finds that private sector inflation expectations became more firmly anchored over 2000–2025, with only a temporary drift during the pandemic inflation surge. Distribution measures offer the clearest early warnings of instability, while firms adjust more slowly than analysts and unions. Expectations began converging toward the new 3% target in 2025.