Your take-home salary increased over the last four months

Despite SA’s hard-pressed consumers being bearish about their future financial well-being and confidence sinking to the worst level since 1982, their take-home salaries still increased over the last four months.

This is according to the latest Bankserv Africa Disposable Salary Index, which indicated that South African’s real take-home salaries (after tax is deducted) increased for the fourth consecutive month in June by 1.3%.

The average take-home salary in the same month reached R13 894, which is the highest in 15 months (see graph below).

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Source: BankservAfrica and Economists.co.za

The rise in salaries was helped by higher inflation increases, which are used as a benchmark to determine the rate of salary increases awarded to formal sector employees. In nominal terms (before tax is deducted), the average take-home salary increased by 6.7% to R13 980 compared with the 6.6% recorded in May.

The index analyses broad economic trends in a wide range of sectors, using economic transactions that are captured by BankservAfrica of more than three million people.

The largest recent decline in the growth of consumers’ take-home salaries was in January 2017, when salaries fell by 2.6% to R13 792. Before January 2017, salaries were declining over the past two years.

Economists.co.za chief economist Mike Schüssler, who compiles the index for BankservAfrica, said consumers are still feeling the pinch despite an improvement in their salaries. “Consumers are starting to recover from the recent period of high inflation. At the moment they are still treading above water,” he told Moneyweb.

Supporting Schüssler’s views are figures from FNB/Bureau for Economic Research, which indicated that consumer confidence in the second quarter of 2017 had sunk to its worst level since 1982. Confidence is not based on consumers’ current financial well-being but their concerns about the future.

The bright spot, Schüssler said, is that consumers’ take-home salaries increased even though the personal income tax bracket hasn’t been fully adjusted for inflation over the last decade and medical insurance payments being 3% higher than inflation.

Another positive is that private pension payments continued to grow above the inflation rate. According to BankservAfrica, the average pension paid in real terms was R6 567 in June 2017, which is higher than the R6 443 in June 2016 (see graph above).

The outlook for consumers’ financial position appears to have markedly improved. The Reserve Bank cut interest rates last week for the first time in five years due to a much-improved inflation outlook.

The bank’s Monetary Policy Committee cut the key repo rate by 25 basis points to 6.75% – slashing the interest rates from 10.50% to 10.25%.

This was welcome news as it’s expected to offer some respite to consumers after the bank raised interest rates by 200 basis points since the start of the rate-hiking cycle in 2014.

The Reserve Bank was also upbeat about its inflation outlook, expecting it to moderate by an average 5.3% in 2017, 4.9% in 2018 and 5.2% in 2019.

However, Schüssler said an improved economic outlook won’t necessarily translate to higher consumer spending.

Retail sales increased by 1.7% year-on-year in May of 2017, following an upwardly revised 2% gain in April. The largest contributors to the overall retail sales were sales of food, beverages, and tobacco.

“Retail sales will eventually recover to a higher rate. However, increases in consumers’ take-home salaries won’t bode well for retail sales, especially sales that depend on discretionary income like car sales,” he said.

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