Disposable salary increases outpace inflation for six months running

The take-home pay of employees saw a substantial increase - the largest in five months - of 8.9% in February over the last year, according to the regular BankservAfrica Disposable Salary Index (BDSI). When taking inflation into account the increase was 4.8%. This indicates that employees in the formal sector are still getting disposable salary increases that have outpaced inflation for six months in a row.

The real increase of 4.8% over the last year is the strongest since October 2014.

“BDSI performance indicates employed consumers are highly likely to continue spending as their disposable salaries allow them to grow their spending faster than inflation, says Dr Caroline Belrose, Head of Fraud and Data Analytics at BankservAfrica.

“This is driven by salary increases as well as a lower inflation rate of 3.9% for February which, in effect, also puts money back into people’s pockets,” she adds.

While currently there are no major strikes disrupting the data, one must remember that February last year was right in the middle of the platinum strike and average salaries could have been distorted due to this. This means that some of the increase is slightly artificial but nonetheless has a positive impact on consumer spending.

The actual BDSI stands at R12 051 per month in February 2015 which is up from R11 067 in February last year. “While the number is slightly down due to normal seasonal trends from January, the fact that the BDSI continues to beat inflation indicates that retail sales and other consumer items will likely continue to see real increases as well,” says Mike Schüssler, Chief Economist at Economists dotcoza.

Pensions outperform salaries for the second month running

The BankservAfrica Private Pension Index (BPPI), released in conjunction with the BDSI, indicates that the average pension increased nearly 1% more than the average salary. This is the second month in a row - and the fifth time in a year - that this has occurred. It seems that pension payment increases are at least keeping up with salary pay increases.

BPPI data shows that the average pension deposited into private bank accounts in February 2015 was R5 557. This is an improvement of 9.8% over the last year, and a 5.7% improvement in the average real disposable pension after taking inflation into account.

“While this is only 46.1% of the average take-home salary it does indicate that pensioners appear to be getting some benefit from the increase in equity prices over the last few years. Pensions remain well below half of take-home salaries but the new personal income taxation rates should allow disposable pensions to catch up slightly over the coming year,” says Schüssler.

Actual number of payments via the BankservAfrica system decline

There is however a negative trend in both the salary data and the pension data that is not easily explained, namely that the number of salary payments made declined by 1% over the last year.

This salary cheque decline is unexpected, given that it occurred in a month that suffered a major strike last year, therefore one would have expected an increasing number of payments. Even the smoothed number shows a decline of 0.2% which comes on the back of a large decline in January and February last year, due to major strike action. One cannot be sure of the precise reason but it does seem as if the decline in the number of monthly electronic salary payments could be due to some job losses.

“This however pales in comparison to the unexpected decline of 4.1% in the number of private pension payments over the last year, from 649 500 to 622 600” says Belrose. “This is also the second month in a row with a year-on-year decrease in the number of pension payments and this is difficult to explain.”

With the population over 60 increasing with 3.4% every year and more people apparently saving for a pension there does not seem to be an obvious answer.

Total payments increase slower than average payments

The total payments to average payments ratio in February shows that total salaries deposited into bank accounts was up by 9.8%. This strong growth however seems to have again come from those whose take-home pay is over R100 000 pm, which BankservAfrica exclude from average salary calculations.

It also comes despite the actual drop in the number of payments and although BankservAfrica uses smoothed figures, the total amount deposited into people’s bank accounts for salaries and pensions was still impressive.

Overall, people in permanent jobs still seem to be better off than before but there are some small indications that there may be fewer of them.

“With the BDSI often leading retail sales by a month or so, and with the large fall in oil prices helping inflation decline there will likely be more spending on consumer goods in the next month or two based on the current take-home pay data. So the increase in consumer expenditure is likely to remain close to 8% to 9% for the coming months in nominal terms,” Schüssler concludes.