We showed in an earlier post that inflation expectations in South Africa remain heavily tied to current inflation rather than fully anchored to the target. But are inflation expectations more anchored at longer horizons than shorter horizons in South Africa? For example, in the most recent survey both one-year, two-year ahead expectations have risen strongly in response to the ongoing deviation in inflation from target. Today’s post by Jurgens Fourie compares one-year, two-year and 5-year ahead survey-based expectation anchoring. The correlation between deviations in inflation expectations from target and deviations and deviations in headline inflation from the target at each point in time is just below one for the post 2017 period at 0.8 (0.88 post-pandemic) at one-year ahead, 0.6 (0.79) at two-year and 0.63 (0.84) at five-year ahead horizon. So while anchoring is slightly stronger at longer horizons, expectations are not anchored as in countries such as the UK, Sweden, Czechia, Israel, United States, Switzerland, Japan, Australia, Mexico or New Zealand.
Footnote
As we have shown in earlier posts (here, here or here), there are many ways to measure inflation expectation anchoring.
