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In SA salaries keep up with inflation

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South African workers are treading water in terms of income and growth.Standard Bank’s Consumer Trends Report: 2016 shows that total personal income is estimated at R3-trillion in 2016, up from R2,8-trillion in 2015, a nominal growth of 6,5% year on year . With inflation of 6,3% in 2016, therefore, real growth in personal income in 2016 averaged 0,2% in 2016, which is not supportive of household expenditure.

These income estimates are based on a cash-flow basis, i.e. income actually received including non-recurring forms of income, and after personal income tax. As expected, the bulk of this is generated from salaries and wages, accounting for 70% of total personal income in South Africa.

Accounting for population size, an average adult South African was poorer in 2016 than in 2015. In real terms, income per person is estimated to have declined by -1,3% y/y in 2016, from R76 578 to R75 541 per annum.

These declining income levels are against the backdrop of the challenging economic environment and are apparent across all income groups earning above R12 700 per annum. Individuals in the lowest income group (R0-R12 700) are expected to have received a 2,2% real increase in income per person, while those in the highest income group (R1 698 001+) are expected to have become “poorer”, with income per person declining 8,8% in real terms between 2015 and 2016.

The lowest income group relies primarily on wages and salaries (46% of total income) and social grants (26% of total income). Wage bill and social grants are expected to have risen by a nominal 6,3% y/y (down from 11,9% y/y in 2015) and 7,9% y/y (down from 7,7% y/y in 2015) respectively in 2016.

In contrast, the highest income group relies mainly (66% of total income) on investments for income generation. Income generated from investments is expected to have risen by only 2,5% y/y (down from 8,2% y/y in 2015) in nominal terms. The subdued growth in income generated through investments can be ascribed to South Africa’s weak economic performance, resulting in subdued returns from the equity market.

Since 2011, per capita income for the lowest income group has risen by 19% in real terms, from a low base of R807 to R989 pa. The average income in this income group is subdued by the high number of people with no sources of income in South Africa, estimated to have been 41% of the adult population in 2016. Group 1 accounts for approximately 50% of total adult population. Average income in Group 2 has risen by 6% in real terms since 2011. These groups source their income predominantly from salaries and wages (presumably low paying jobs such as domestic workers, security guards, etc) as well as social grants.

Encouragingly, there are some indications of population migration up the income groups. Group 1 has declined by 1,7% in size since 2011, while Group 2 has grown by 0,55%. Similarly, Group 6 declined slightly, by 0,04%, while Groups 7 and 8 grew by 0,54% and 0,05% respectively over the same period. It must be pointed out though that a more micro-level data is needed to measure the exact extent of this growth.

In the middle segment (Groups 3-5), income per person declined by an average 4,5% in real terms between 2011 and 2016, despite very little growth in the size of the segment (Figures 5 and 9). As a proportion of total population, this segment grew by a mere 0,1% since 2011. Therefore, the decline in income levels in these segments is primarily due to income growth that has not kept up with inflation.

In the affluent segments, Groups 6, 7 and 8, real income per person declined significantly, by between 15% and 30% from 2011. The pace of income growth in these segments has not kept up with the pace of migration of the population, from lower income groups into affluent groups. Notwithstanding, the affluent segment still enjoys very high buying power. Income per person in Group 7 is estimated to have been R960 000 in 2016, down from R1,2-million in 2011 in real terms. Income per person in Group 8 is estimated at R4,53-million in 2016, down from R6,53-million in 2011 in real terms.

On average, income per person in South Africa is estimated to have recorded very modest growth of 0,4% in real terms from 2011 to 2016.