The BankservAfrica Take-home Pay Index (BTPI) – which tracks the average nominal take-home pay among an estimated 4-million salary earners in South Africa – improved for the fifth consecutive month in August.
“The average nominal take-home pay reached R16 582 showing a 6,7% increase compared to a year ago,” says Shergeran Naidoo, BankservAfrica’s head of Stakeholder Engagements. “In real terms, take-home pay also tracked higher at R14 520 in August 2024 or 1,9% up on a year ago levels.”
Take-home pay has so far in 2024 surprised to the upside, reflecting an improvement in South Africa’s economic fundamentals. Not only has load shedding been suspended for almost six months, but a notable moderation in inflation, a new political landscape, and the first cut in interest rates since March 2020 have also provided a much-needed boost to confidence and an improved business environment. Firm indications that the Government of National Unity will focus on accelerating structural reforms to address obstacles to growth and job creation are also welcomed.
A comparison of the average nominal BTPI for the first eight months of 2024 to the corresponding period one year earlier revealed a 6,6% increase. Similarly, in real terms, an increase of 1,3%.
“These numbers suggest 2024 will likely be the best year for salaries since 2020 – or the first year in which the increase in average nominal take-home pay beats inflation since 2020. This improvement in purchasing power will go some way to provide much-needed relief to cash-strapped households and could provide support for consumer spending,” says independent economist, Elize Kruger.
The improved environment for salaries is confirmed in Remchannel’s April 2024 Salary and Wage Movements Survey, published in 2024. In line with the BTPI, the survey results suggested that 2024 will be the first time in three years that the average salary increases will be higher than inflation.
The report notes that despite wage increases aligning with CPI trends, the high cost of living continues to drive debt dependency for most workers. When it comes to determining salary increases, the survey noted the following top five considerations: CPI; company profitability/affordability; individual performance; market position/market trends; and guidance from salary surveys.
Given the importance of inflation as a determinant of salary increases, inflation expectations come into sharp focus.
According to the latest Inflation Expectations survey – compiled quarterly by the Bureau of Economic Research (BER) on behalf of the South African Reserve Bank – expectations of average headline inflation are in the top half of the target range of 3% to 6%, at 4,8% for both 2025 and 2026 and still at 5,1% for 2024. For 2024, the consensus forecast for average headline CPI, as published by Reuters was indicated at 5,0% in January 2024.
On the back of the recent appreciation of the rand exchange rate, moderation in food price inflation, and lower fuel prices the latest Reuters consensus published on 18 September suggested an average headline CPI of 4,7% compared to Carpe Diem Research Services’ latest forecast of 4,5%. Therefore, the moderation in expectations throughout 2024 has been an important contributing factor to a recovery in the average real wage increase so far in 2024.
According to the latest Reuters consensus, average headline CPI is forecast to be 4,7% in 2024, 4,3% for 2025, and 4,5% in 2026 – comfortably within the SARB’s 3% to 6% target band and the trigger for the SARB’s decision to cut the repo rate by 25bps at the most recent Monetary Policy Committee meeting.
“With indications that the average salary increase could realise around 6% in 2024, a real increase of around 1.3% is firmly on the table as signalled by real BTPI data – a scenario that suggests a moderate recovery in purchasing power of salary earners,” says Kruger. “Seen in combination with the expectation of further interest rate cuts – with cumulative cuts of 125bps by May 2025 – and further relief at fuel pumps in the short-term, the potential for an uptick in consumer expenditure and some debt repayment is on the rise.”
The BankservAfrica Private Pensions Index (BPPI) – which tracks the pension payments of about 700 000 pensioners – moderated in both nominal and real terms in August 2024.
“The average nominal private pension subsided to R11 122 in August 2024 – lower than the previous month, but still up from January’s R10 868 and still 3,4% higher than a year earlier,” says Naidoo. In real terms, the average BankservAfrica BPPI for August 2024 also moderated on a monthly basis and dipped 1,0% below a year earlier.
However, when comparing the average nominal BPPI for the first eight months of 2024 to the corresponding period one year earlier a 4,9% increase is observed – while the real BPPI declined marginally compared to the corresponding period in 2023.
The pension industry remains in sharp focus given the implementation of the Two-Pot Retirement System on 1 September. The new dispensation will likely create a greater awareness among members about their retirement savings which is welcomed and helpful. Currently, the BPPI reflects only pension payments to actual pensioners.