South African inflation expectations rose for the next two years, providing impetus for the central bank to extend its most aggressive rate-hiking cycle in decades.

Average inflation expectations for the year increased to 6.5% in the second quarter from 6.3% previously, according to a survey conducted by the Stellenbosch-based Bureau for Economic Research. The rate of price growth for 2024 is now seen climbing to 5.9% from 5.8% and to 5.6% the year thereafter, according to participants in the poll of analysts, business people, labor unions and households conducted.

All social groups revised their forecasts upward for 2023 since the previous survey, the BER said Thursday in a statement published on its website. The expectations were above the central bank’s average inflation forecasts of 6.2% for this year, 5.1% for next and 4.5% in 2025.

The survey results influence decision making by the South African Reserve Bank’s monetary policy committee, which prefers to anchor inflation expectations close to the 4.5% midpoint of its target range.

Its preferred indicator for medium-term inflation expectations is two-years-ahead.

The rate of price growth, spurred by the worst global inflation shock in a generation, has breached the target ceiling since May 2022 and the midpoint for more than two years.

The central bank’s MPC has raised the key interest rate by 475 basis points to 8.25%, its highest level in 14 years, since it started tightening in November 2021.

Governor Lesetja Kganyago and his deputy Kuben Naidoo said this week that once the MPC is confident that inflation is returning to the midpoint of the target range, and thus expectations become anchored, it will stop hiking.

Forward-rate agreements starting in a month — used to speculate on borrowing costs — show traders are pricing in a more than 60% chance that the MPC will hoist the repurchase rate by 25 basis points on July 20.

Average five-year inflation expectations fell to 5.2% from 5.5%, the BER said. The survey was conducted between June 12 and 29.