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Salaries in June struggle to keep pace with high inflation

27 July 2022 BankservAfrica

However, the latest data suggests job creation in Q2 2022

Rocketing inflation rates are taking a toll on the average salaried worker, as seen in the latest monthly BankservAfrica Take-home Pay Index (BTPI). This combined with recent interest rate hikes and weakened rand exchange rate, the ongoing load shedding issues, as well as rising fuel, food and administered prices, are putting the purchasing power of South Africans under huge pressure. As a result, low confidence levels are evident among consumers and businesses.

“Reflecting the dismal economic environment and the impact of inflation, 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. “June is the second consecutive month that nominal salaries have remained below the R15 000 mark and 1.8% lower compared to a year ago.”

In four of the past seven months, there has been negative year-on-year growth for nominal wages. The rising inflation rate, which Stats SA reported 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 as such having a meaningful negative impact on South Africans’ purchasing power. 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 forecasted to increase further in July, before reaching an upper turning point, more pressure can be expected on consumers and the economy at large.”

The BTPI shows 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 Q2 2022 compared to Q1 2022 (+370K new employment opportunities in Q1). The gradual relaxation of COVID-19 restrictions and the final removal of all lockdown restrictions, effective from 23 June, would have had a positive impact on employment opportunities for seasonal and temporary workers.

The BankservAfrica Private Pensions Index (BPPI) showed that the average nominal private pension reached R10 000 per month for the first time, representing a 9.1% growth on a year-on-year basis, according to Naidoo. In real terms, the average real private pension was R9 673 per month, 1.5% higher than a year earlier. Although there were monthly real declines recorded in three of the past six months, average real pensions have 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.

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.

Consumers will have to brace themselves for an average headline CPI of around a forecasted 7% in the second half of 2022, which will further erode purchasing power. As such, more real declines in average salaries can be expected in coming months.

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