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A survey of households, businesses, trade unions, and analysts suggested that the inflation rate will overshoot its January projection by a significant degree. That expectation is likely incorrect given that it was based on an incorrect assumption of fuel prices and the Iran War.

The survey in question is called Survey of Inflation Expectations and is conducted by the Bureau of Economic Research (BER), a think tank based in Stellenbosch.

The BER conducts the survey by asking a range of groups, from consumers to economists, whether they think prices will increase or decrease. The latest survey was conducted between 18 May and 4 June. It found that inflation for the year was expected to come in at 4.4%, which was 0.8 percentage points, or 22%, above the January expectation.

That matters a lot because inflation expectations are used to gauge interest rate expectations. If the market thinks that inflation will overshoot its projections, then it also prices in a very strong likelihood of interest rate hikes.

However, The Common Sense’s in-house economist Bheki Mahlobo said, “The market is wrong and inflation is not going to average a level of 4.4% for the year. The market is making the same mistake that many analysts are making in factoring a too-high global oil price for the balance of 2026.”

In May, Mahlobo had already forecast that the global oil price would come down to levels of between $65-$73 per barrel by mid-year, which it has now done. Most analysts and publications had incorrectly forecast the oil price and have had to publish retractions.

Mahlobo said that he expects the South African Reserve Bank (SARB) “to keep interest rates stable in July and then to hike by 25 basis points into the end of the year in order to maintain the interest rate differential in the event that the United States central bank hikes”.

The interest rate differential refers to the difference between South African and United States interest rates. That differential must be kept as wide as possible to attract investment into the rand, which lifts demand for the local currency and therefore helps it to retain what strength it has. This is one of the most effective means that the SARB has to combat inflation.