Salaries in South Africa are getting wrecked

Employed South Africans have seen their salaries decimated in real terms over the past two years, with 2024 looking to deliver another blow as inflation continues to eat away at disposable income.

The latest data from the Bureau for Economic Research (BER) shows that salaries and wages increased by 3.8% in 2022 and 4.6% in 2023, while inflation averaged 6.9% and 5.9%, respectively.

This resulted in a cumulative decline in consumer buying power of 4.6% during 2022-2023.

For 2024, salaries and wages are expected to increase by an average of 4.9%, according to the BER Survey of Inflation Expectations 2024Q2, while the average inflation forecast ranges between 4.9% and 5.3%.

This would result in either zero real growth or another 0.4% decline in inflation-adjusted consumer buying power.

Salaries and wages are expected to increase by 4.9% again in 2025, and inflation is expected to average between 4.6% and 4.8% for the year.

This will result in a marginal 0.1% to 0.3% increase in buying power.

When it comes to disposable income, the prospects are slightly better.

A comparison of the average nominal BankservAfrica Take-home Pay Index for the six months to June 2024 to the corresponding period one year earlier shows that take-home pay has increased 6.7% year on year—1.3% growth in real terms.

“If sustained throughout the year, 2024 could turn out to be a notably better year for salaries,” the group said.

In June, take-home pay tracked slightly lower at R13,634, only up 0.7% year-on-year.

The South African Reserve Bank forecasts an annual salary increase of 6.1% in 2024 for non-agricultural workers, which would see real growth of around 1.2%, in line with the BankservAfrica data.

Inflation and Interest rates

Key to these projections, however, is whether inflation can be contained and the South African economy can grow at a reasonable rate. The pressure on households is also dependent on the SARB and its policy moves on interest rates.

The latest inflation data for June, published by Stats SA on Wednesday (24 July), shows that inflation is still taking its time in easing, only declining by a paltry 0.1 percentage points to 5.1% in the month (from 5.2%) before

More positively, interest rates are now expected to start coming down in September. This will provide some relief to consumers, and more disposable income in their pockets.

At its latest meeting, the SARB’s Monetary Policy Committee was more bullish on the wider economy, with two members of the MPC voting to cut rates by 25 basis points in July.

However, Reserve Bank governor Lesetja Kganyago warned that the fight against inflation was far from over, with the prevailing headline rate still not at the mid-point of the bank’s target range (4.5%), which he only expects to achieve by mid-2025.

Households feeling the pinch

According to consultancy group PwC, it currently has one of the more bearish views on salaries, projecting a 0.4% decline in real terms for 2024 and a marginal 0.1% boost in 2025.

Commenting on its latest Voice of the Consumer Survey 2024, the group flagged inflation, low economic growth and unemployment as the three biggest potential threats to consumers and the country, according to respondents.

Lullu Krugel, PwC South Africa Chief Economist, noted that concerns about the cost of living are frequently identified by South Africans as something that keeps them up at night.

“The combination of elevated inflation and accompanying high interest rates at present is placing pressure on household budgets,” she said.

The survey asked South Africans about their spending intentions in the coming six months and how they expect their expenditure on specific product categories to change.

A key finding was that, on average, 60% of respondents expect to spend more on essentials, while only 42% expect to spend more on comfort and/or luxury goods.

Essential goods include groceries, clothing and footwear – items which represent the most basic of human requirements.

According to PwC, households in South Africa spend a combined 20% of their money on food, non alcoholic beverages, clothing and footwear.

However, this number ranges from almost 60% in households with the lowest income levels (up to R20,000 per annum) and just over 13% in the highest income households (more than R300,000 per annum).

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