South Africans’ salaries can’t keep up with dismal economic environment, inflation

The dismal economic environment and inflation is clearly affecting salaries as rocketing inflation rates takes its toll on the average salaried worker.

Salaries struggled to keep pace with high inflation in June, the second consecutive month that nominal salaries remained below the R15 000 mark, 1.8% lower than a year ago.

According to the latest monthly BankservAfrica Take-home Pay Index (BTPI), these lower salaries, combined with recent interest rate hikes, the weakened rand exchange rate and ongoing loadshedding, as well as rising fuel, food and administered prices, are putting the purchasing power of South Africans under huge pressure, causing low confidence levels among consumers and businesses.

“The BTPI showed that the average nominal salary has been moderating notably from R15 570 in February to R14 600 in June 2022,” says Shergeran Naidoo, BankservAfrica’s head of stakeholder engagements.

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Negative year-on-year growth in salaries

It is worrying that in four of the past seven months, there has been negative year-on-year growth for nominal wages and Naidoo says the rising inflation rate, which hit a 13-year high of 7.4% for June last week, spells trouble for the average salaried worker.

“Aligned with global trends, local consumer inflation increased to a 13-year high of 7.4% y/y in June, from 6.5% y/y in May, running notably ahead of wage increases in the economy and affecting South Africans’ purchasing power negatively. This is reflected in a notable 7.8% y/y drop in the real salaries recorded in the BTPI,” says independent economist Elize Kruger.

“With consumer inflation forecast to increase further in July before reaching an upper turning point, more pressure can be expected on consumers and the economy at large.”

According to the BTPI, more people have been receiving salaries compared to a year ago. After adjusting for weekly workers, the BankservAfrica data indicates that about 300 000 more salaries were paid in the second quarter of 2022 compared to the first quarter with 370 000 new employment opportunities.

This is in line with the gradual relaxation of Covid-19 restrictions and final removal of all lockdown restrictions, effective from 23 June that had a positive impact on employment opportunities for seasonal and temporary workers.

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Private pensions index

The BankservAfrica Private Pensions Index (BPPI) showed that the average nominal private pension reached R10 000 per month for the first time, growing by 9.1% on a year-on-year basis, Naidoo says. In real terms, the average real private pension was R9 673 per month, 1.5% higher than a year earlier.

Although monthly real declines were recorded in three of the past six months, average real pensions held up reasonably well despite rising inflation. The total take-home pay and private pensions processed in value terms increased by 4.8% in real terms and by 12.6% in nominal terms, not seasonally adjusted.

Kruger says with ever-increasing pressure on the disposable income of households, consumer spending, which contributes about 63% of South Africa’s GDP, is likely to falter in the coming months.

“The sources of higher inflation, specifically higher food, fuel and administered prices, are still in a relentless upward trend and unlikely to abate in the short term, while the risk of second-round effects on the consumer basket is on the rise.”

She warns that consumers must brace themselves for an average headline CPI of around 7% forecast for the second half of 2022, which will further erode purchasing power. As such, it can be expected that there will be more real declines in average salaries in coming months.