Increase in take-home pay in January shows positive start to 2025

The increase in take-home pay in January is a positive start to 2025, with data pointing to notable monthly and annual increases in the average salaries of South Africans.

According to BankservAfrica’s Take-home Pay Index (BTPI) that tracks the average nominal take-home pay of an estimated 4 million salary earners in South Africa, the average take-home pay increased to R18 098 in January compared to R17 246 in December and R15 564 in January 2024.

Shergeran Naidoo, BankservAfrica’s head of stakeholder engagements, says the upward trend in average salaries started early in 2024 and despite some monthly volatility, nominal take-home pay continues to tick higher.

Elize Kruger, an independent economist, says this positive salary trend reflects a generally improved business environment, notable moderation in inflation, higher confidence levels in the economy and three interest rate cuts that provided much-needed relief.

She points out that company profitability also improved during 2024, as reflected in the above inflation increase in the gross operating surplus of companies. “The improving environment was also echoed in the sizeable total return on the FTSE/JSE All Share Index in 2024 (+13.4%), reflecting the promising earnings potential of listed companies.”

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Even inflation had no adverse effect on take-home pay

Naidoo says take-home pay also increased in real terms (considering the effect of inflation) to R15 659 in January, a notable 12.8% increase on the levels a year ago and reached its highest level since February 2022.

“This was driven by the significant moderation in consumer inflation during 2024, from 5.3% in January to 3% in December las year, which has had a positive impact on the purchasing power of salary earners. Inflation also averaged 4.4% in 2024, the lowest annual rate since 2020.”

Kruger says as such the real take-home pay averaging at R14 292, up by 3.1% in 2024, represented the first real increase in take-home pay since 2020. “On the assumption that inflation will remain well-contained in 2025, with the average headline inflation rate forecast to be 4.2%, 2025 could be the second consecutive year of positive real take-home pay growth.”

The observed recovery in disposable income was reflected in healthier retail sales, with real retail sales growth for 2024 at 2.5% higher than the previous year, compared to -1.2% in 2023. Passenger car sales also started to recover towards the end of 2024, with full-year growth of 1.1% compared to the 4.3% contraction in 2023.

Kruger says the cumulative 75 basis points reduction in interest rates and two-pot retirement system withdrawals would have supported consumer spending.

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Take-home pay expected to improve further in 2025

Salaries are also expected to improve, provided current conditions hold and Kruger says looking ahead to 2025 the economic outlook indicates that the salary gains seen in 2024 could continue to strengthen.

Real gross domestic product (GDP) growth is forecast to increase by 1.7% in 2025, somewhat higher than in 2024. Kruger says the acceleration in growth will be driven by a combination of improved household consumption expenditure, higher fixed investment spending and further advances in structural reforms.

“An ongoing focus on improving South Africa’s electricity generation capacity, addressing supply chain blockages relating to freight rail and port operations and upgrading water infrastructure are much-needed actions to propel the economy forward.

“The anticipated improvement in the business environment is expected to enable companies to offer more substantial salary increases in 2025, which in combination with a moderate inflation environment could mean a second consecutive year of a real increase in take-home pay.”

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Impact of a 2% increase in VAT on positive inflation outlook

However, she points out, if this year’s budget had been tabled with the 2% VAT increase, it would have derailed the positive inflation outlook, eroding the fragile recovery in the purchasing power of salary earners.

“While we await the revised budget on 12 March, the postponement has introduced uncertainty, raising concerns about its potential impact on the economy’s recovery prospects,” Kruger says.