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Inflation triggering downward salary trend

24 August 2016 Dr Caroline Belrose, BankservAfrica
Dr Caroline Belrose, Head of Knowledge and Risk Services at BankservAfrica.

Dr Caroline Belrose, Head of Knowledge and Risk Services at BankservAfrica.

BankservAfrica’s July data shows higher inflation rates are pushing salaries down, while pensions continue to climb.

The growth gap between salaries and pensions continues to widen, according to the latest BankservAfrica Disposable Salary Index (BDSI) and Private Pension Payments (BPPI) indexes – a trend that began in January this year due to economic pressures.

BankservAfrica tracks take-home pay and pensions that are paid via the South African payment system on a monthly basis and provides valuable insights on South African consumers as well as salary and pension trends.

For the second consecutive month, disposable salaries - as paid through the South African payment system via BankservAfrica – declined in real terms due to increased inflation.

“The decline of 2.2% year-on-year in real terms in July is the biggest since early 2015 when government salary increases were delayed by three months,” says Dr Caroline Belrose, Head of Knowledge and Risk Services at BankservAfrica.

The impact of higher inflation and the weak economy is very evident. Although salaries increased in nominal terms by 4% year-on-year, the inflation rate is far higher. This is exacerbated by the fact that formal sector employees are not getting salary increases to make up for this. High-income earners are also bearing this burden.

“Take-home salaries are being squeezed further by increases in deductions on gross salaries, such as personal tax hikes, and medical insurance, which increased by 9.2%, nearly one-and-a-half times the inflation rate,” says Mike Schüssler, Chief Economist at Economists dotcoza.
Furthermore, the data shows that the weakened economy has reduced the probability of bonus payments, while the strained economic conditions have lowered hopes of salary increases.

The only notable difference was in the public sector. Representing the largest employment sector, salaries here increased by 7.6%. If it had not been for the late payment of government salary increases last year, the data shows that most of the month’s salary increases would have been below the rate of inflation. As a result, government employees, with two effective salary increases – due to the late payment of salaries last year – had a substantial impact on salary increase in this month’s BDSI.

BPPI continues to gain ground

While private pensions paid into bank accounts via the BankservAfrica payment system remains at levels of less than half of disposable salaries – the percentage change is an increase in both real and nominal terms.

“Pensions increased by 8.5% year-on-year in nominal terms. Even when taking inflation into account, pensions increased by 2% year-on-year. For a full 24 months, average private pensions have increased by more than the inflation rate,” says Dr Belrose.

According to Schüssler, the higher increase has to do with the fact that pension funds have been using their full 25% allotment of foreign investments. In Rand terms, these investments have increased sharply. Moreover, local investments have also increased although not as much as foreign investments.

However, the indexes show that that trend in pensions is far more positive than that of salaries a trend BankservAfrica says is persistent.

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