Trouble for salaries and wages in South Africa

The Bureau for Economic Research (BER) says that South African salaries have not been keeping up with inflation for several years, putting households under significant strain.

The prospects for 2025 look slightly better—but still not enough to bring much-needed relief, despite inflation easing and interest rate cuts on the way.

Speaking to ENCA, BER senior economist Shannon Bold said that South Africa’s cost of living crisis has been ongoing for some time, but households really started feeling the pinch when Covid-19 hit and supply chains were disrupted drastically.

There was some reprieve following the pandemic, and things opened up again, but the food and fuel inflation crises in 2023—along with the huge damage done to the economy by near-permanent load shedding—really put South Africans under pressure.

Food price inflation, in particular, hit the double-digits, fuelling an affordability crisis. A cumulative 475 basis points also hiked interest rates to 15-year highs in 2023.

“All of that means you have less disposable income left for spending,” Bond said.

The economist said that things are likely to improve this year, with inflation coming down and interest rate cuts expected in the coming months. However, whatever relief lies ahead, South Africans won’t be able to loosen their belts until salaries start increasing above inflation.

Bold said that wage negotiations are “almost backwards-looking,” resulting in multi-year deals that are typically ‘CPI plus X percent’. This fuels inflation by creating consumption demand that pushes inflation up.

“It’s a very difficult thing to disentangle,” she said, adding that 2023 was a particularly harsh year for wages and disposable income contracted.

The latest data from the 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—meaning South Africans will still have a long wait ahead for real wage growth to arrive.

“Overall, households are under a lot of strain, and we’ve seen it in consumption spending, which contributed to the economy contracting in Q1.”

The economist said that the data shows that households are turning to debt to cover their expenses, “which is quite scary. Especially for vulnerable households, where this isn’t usually an option.”

Consumer insights and data science firm Eighy20 showed in its latest study that the middle-class and ‘wealthy’ segments in South Africa—those earning over R15,000 and R35,000 a month—carry a debt-to-income ratio of 56% and 85%, respectively.

This means that debt repayments make up a significant portion of monthly spending.

The BER’s consumer confidence survey shows a disjoint between households’ views on the economy and their finances.

While households expect the economy to worsen in the next 12 months, they don’t see it as affecting their household income.

Higher-income households are less optimistic than middle or lower-income households.

Bold said that lower-income households spend the biggest portion of their budgets on food and transport costs and shelter.

Meanwhile, Higher-income households have more discretionary spending—but the strain is evident in sectors like services and durable goods, where spending has not been performing well.

This shows that higher-income households have responded to the cost-of-living crisis by shifting away from discretionary spending and towards more essential spending.

Read: Perfect storm hitting South Africans earning more than R20,000 per month