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Can we expect even higher interest rates?

The latest quarterly results of the PPS/School for Economic and Business Sciences (SEBS) inflation survey among South African professionals show clearly expectations of even higher inflation in coming months.  At the same time they report perceptions of actual price increases exceeding the official rate of inflation in the first quarter of 2016.

“If these expectations are realised, the South African Reserve Bank has no option but to increase interest rates,” says Professor Jannie Rossouw, Head of Wits’ School for Economic and Business Science.  

Rossouw, in association with the Professional Provident Society (PPS), have recently completed their seventh comprehensive South African inflation survey among PPS members.

Respondents were asked to respond to two questions:

1. Whether they believe that historic inflation reflected accurately the price increases in South Africa; and 

2. To state their expectations of future inflation.

Eighty-eight per cent of respondents indicated that they perceived actual price increases to be higher than the official rate of inflation.  This is substantially higher than the finding of the fifth survey conducted in the first quarter of 2015, when 83 per cent of respondents reported a perception of price increases above the rate of inflation (Figure 1).

Figure 1

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In response to the second question, respondents had to state their expectations of future inflation. As is shown below, 82 per cent of respondents expect higher inflation in future, which is closely linked to the percentage of respondents perceiving inflation at levels higher than the official rate of inflation (Figure 2).

Figure 2

Respondents are fairly evenly spilt over age groups representing South Africa’s economically active population

(Figure 3).  This shows that the inflation perceptions and expectations reported in the survey are prevalent over the full spectrum of South Africa’s population.

Figure 3

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“The research data shows that an acceleration in price increases feeds into perceptions of the inflation rate under measuring actual price increases in the economy,” says Rossouw.  “As South Africa follows an inflation targeting policy framework, accelerating inflation is followed by interest rate increases.”

The research also shows a clear link between inflation perceptions and inflation expectations.  The only way to contain inflation expectations is to convince consumers that historic inflation figures reflect accurately historic price increases.  The implication is clear: The SA Reserve Bank should focus more on convincing consumers of the accuracy of historic inflation figures in its quest to contain inflation expectations.

“PPS includes the survey questions in its quarterly survey among South African professionals and will continue to do so in future,” says Gerhard Joubert, Head of Group Marketing and Stakeholder Relations at PPS.  “PPS is excited about this collaboration with SEBS at Wits. Collaboration between PPS and SEBS started in 2014.  It has grown this year, with PPS sponsoring the first school management training capacity building workshop, hosted by SEBS for school principals in the Gauteng West Region on 27 and 28 June 2016.”

The quarterly survey is distributed electronically among PPS members and forms part of a broader survey on perceptions and impressions undertaken by PPS. The survey is completed electronically by PPS members and is therefore free from any enumerator bias of influence.

The latest survey questions were distributed on 19 May 2016 and received 3 818 responses.