More people working, but more pressure on salaries coming

More people were working in February, but more pressure on their salaries is coming with the war in Ukraine impacting major commodity prices that will lead to higher prices and of course higher inflation.

The monthly BankservAfrica Take-home Pay Index (BTPI) indicates that recovery from the massive Covid-19 pandemic shock continues as the share of payments to casual and weekly workers continued to climb in February 2022.

The BTPI measures the average South African salary and revealed double-digit growth year-on-year for the number of salaries paid to casual and weekly workers, but this also contributed to a decrease in the average salary.

Shergeran Naidoo, BankservAfrica’s head of stakeholder engagements, says the average real take-home salary for February 2022 decreased by 4.1% to R15 517 on a seasonally adjusted basis and on a nominal basis, the average take-home pay was 1.3% more at R16 022.

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Double digit growth, but for how long?

While the BTPI focuses more on the average salary, Naidoo points out that after the double-digit declines in the casual and weekly wage data estimates for a long period, both these salary bands have now had double-digit growth on a year-on-year basis.

What does this mean? Naidoo says the actual decline in the average real take-home pay signals a return to work for the more vulnerable groups of lower-paid employees.

Mike Schüssler, chief economist at economists.co.za, who worked on the BTPI, says the February inflation rate of 5.7%, will further decrease the real take-home pay of formal sector employees paid via the BankservAfrica system.

“With inflation likely to stay at over 5% and even 6% for several months, take-home salaries will face declines for a lengthy period that could be closer to a year.”

The war in Ukraine affects major commodity prices from oil to wheat prices which will impact inflation not only in South Africa, but globally. Considering that most salary agreements conclude retrospectively, it will take take-home pay a while to catch up to these adverse developments.

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Higher interest rates will take a bite of salaries

Due to the higher inflation rate and the crisis in Ukraine which have led to soaring oil prices, the South African Reserve Bank had to increase the repo rate and although household borrowing has eased to below the inflation rate, the increase could result in higher mortgage repayments.

“Add to this the escalating food prices and rising fuel costs and South African salaries could be under even more pressure. We expect consumer expenditure, such as retail sales, to continue growing moderately for the time being and as the economy drives employment again,” says Schüssler.

The overall take-home totals paid into all the bank accounts of employees increased by 0.6%, the first time since September 2019 that the total monthly equivalent payments increased to over 4 million again. Although this data is very volatile, it suggests that most employment have recovered from the Covid-19 shock.

“The average private pension increased by 0.5% in real terms to R9 667,” Naidoo says. The number of private pensions banked via BankservAfrica remains relatively stable at around the 650 000 and the seasonally adjusted nominalised private pension, was R9 821 following a 6.2% year-on-year increase.