Signs of upturn in take-home abound despite decreases over nine-month period

Dr Caroline Belrose, head of information services at BankservAfrica.

Slowing rate of inflation may create a turning point for salaries.

The BankservAfrica Disposable Salary Index (BDSI) recovered somewhat in nominal terms in February 2017 as salaries improved by 5.7% on a year-on-year basis. This improvement, however, was still lower than the rate of inflation which resulted in salaries declining by 0.8% in real terms.

As such, February was the ninth consecutive month of declines in real-terms – but registered the smallest decline. While this can be attributed to the lower rate of inflation, it was mostly the result of the rise in nominal salary increases which led to disposable pay being at its highest in five months.

The average real disposable salaries reached R13 980 in February. This is the highest since September 2016 when real seasonally adjusted salaries (see BankservAfrica’s BDSI explanation for this below) reached R14 102.

It appears that take-home pay has reached its lowest rate of increase in the four months leading up to February 2017. However, with inflation heading lower and future pay increases now based on 2016 high inflation levels, one can expect that employee salaries will fare better in real terms in 2017.

With 12 out of the last 15 months in the BDSI time series indicating constant take-home pay declines, retail sales are now parallel to car and home sales. According to the latest Stats SA figures, January’s retail sales declined by 2.3% while individual car sales have still not recovered and consumer credit growth remains negative.

Consumer spending has been slow over the last year and is likely to remain so in the coming month or two.However, the lower inflation and salary increases from the formal sector should lift consumer spending by the middle of the year at the latest.

The likelihood of higher real salary increases in much of the formal sector may result in some recovery in disposable salaries from April when civil servants’ inflation adjusted pay increases are realised. This could provide a small but significant boost in real take-home pay.

Graph 1: After inflation changes in take-home salaries and bankable pensions

Source: BankservAfrica and Economistscoza

Graph 2: Real seasonally adjusted disposable salaries and private pension trends from BankservAfrica

Source: BankservAfrica and Economistscoza

BankservAfrica Private Pensions show no change at all after inflationBanked pensions showed no signs of real growth on a year-on-year basis. In contrast to disposable salaries, there are signs of slowing down.

February’s BankservAfrica Private Pensions Index grew at the same rate as inflation, therefore there was no change on a year-on-year basis. However, real private pensions reached a peak in September 2016 with the average pension being R6 605 for the month.

While private pensions declined in the two preceding months, the 6.3% nominal year-on-year increase in February brought some relief to pensioners. However, with real returns on the equity market not advancing above the rate of inflation for just over three years now, it seems likely that private pensions will not outpace inflation increases by as much as they did over the last few years.

With the Rand’s strength in the last 15 months, foreign investments are no longer outperforming inflation. This means pensions are unlikely to beat consumer inflation by much even with inflation falling.

While private pensioner spending makes up a very small portion of overall consumer spending, it does still make a contribution towards general retail-type spending. Therefore, some consumer spending categories will face constraints due to increasing constraints on private and government pensioners.

Table of disposable salaries and private pensions