• Inflation expectations increased in the 1Q23 inflation expectation survey from 4Q22. Inflation is expected to average 6.3% P: 6.1%) in 2023 and 5.8% (5.6%) in 2024 and recede to 5.5% in 2025. Analysts expectations
  • Average five-year IE is unchanged at 5.5% but households one-year-ahead IE accelerated from 6.3% to 7.0% and their 5-yr expectations from 8.4% to 9.9%.
• The economy is expected to grow by 1.0% in 2023, down from 2.0% previously, but accelerate to 1.5% in 2024.
• Salary and wage increases are expected to increase by 5.3% from 5.9%. However, the survey was conducted earlier in the year and expectations could change because of the government’s revised wage offer to the public sector from 4.5% to 7.0%. The rise in F23 was 4.5%, on top of the R20bn cash gratuity, extended for the second year.

March 31 MPC meeting

• There are many moving parts in the SARB’s decision to hike (+25bps) or not to hike the repo rate. Internationally, the collapse of three US banks and the Swiss Credit Suisse will likely lead to tightening credit lending standards. This could be equivalent to a tightening monetary policy of ~25/50bps. A key issue is whether financial stability issues can be separated from monetary policy focused on fighting inflation. In the UK, the selloff in the gilt market was in October 2022. The BOE provided liquidity provided a short-term funding facility but continued with hiking rates. The ECB’s interest rate decision and the framing of its arguments around the possible spillover effect from CS will be closely monitored.
• The rise in inflation expectations will not be viewed positively by the SARB. It accounts for about 50% of the inputs in the QPM. This, together with the nearly 7% deprecation of the ZAR since January’s MPC meeting, shows that some of the upside risks to inflation, have materialised. ON THE OTHER HAND, the oil price has declined to $74/bbl, which could lead to a smaller fuel price increase in April. The mtd average is 19c/l vs a daily overrecovery of 59c/l. The diesel price could be reduced by at least 29c/l (daily overrecovery is running at R1.42/l). However, the movements are likely to be temporary, but could could help the near term inflation outlook.
• Finally, risks to growth in 2023 are to the downside and the SARB could lower its forecast from 0.3%.
• FRA rates are reflecting the uncertainty and is now pricing in an 80% probability of a 25bps rate hike.
• Next Wednesday’s CPI print for February could more conviction. ICIB forecasts a moderation in headline CPI from 7.9% to 7.8% and core CPI inflation to remain unchanged at 4.9%.