The real take-home pay, measured in the BankservAfrica’s Take-home Pay Index (BTPI), saw an encouraging rise in February as the sharp slowdown in inflation through 2024 continues to have a positive effect on salary earners’ purchasing power.
While supporting consumption demand in the economy, salary earners remain under pressure due to the rising cost of living, elevated interest rates, and new taxes placing additional pressure on household budgets. These headwinds have also knocked consumer confidence levels in Q1.
“Real take-home pay, adjusted for inflation, increased by 0.9% on a monthly basis to reach R15 799 in February,” says Shergeran Naidoo, BankservAfrica’s head of stakeholder engagements. “This also represented a notable improvement of 10.7% on year-ago levels and the highest in three years.”
In 2024, real take-home pay averaged at R14 292, up by 3,1% in 2024, representing the first increase since 2020. Should inflation remain well-contained, 2025 will likely be the second consecutive year of positive real take-home pay growth.
The significant moderation in consumer inflation during 2024 had a notable positive impact on the purchasing power of salary earners. This scenario is expected to continue into 2025 with the headline CPI forecasted to average at only 3,6% in 2025 compared to 4,4% in 2024, reaching the lowest annual rate since of 3,3% in 2020.
“This is much needed as salary earners remain under pressure due to the soaring cost of living, high interest rates, and additional taxes, namely the higher VAT rate and no adjustment to tax brackets recently announced in the 2025 National Budget,” says Kruger.
Meanwhile, the nominal average take-home pay rose marginally to R18 241 in February 2025, compared to R18 141 in January, but still above the level of R15 983 a year earlier, continuing the upward trend in take-home pay over the past eight months. According to publicly available data sources, the nominal salary increases for 2025 are forecast to range between 4,1% to 6,5%.
There is a distinct trend emerging among companies with a strong unionised culture, where multi-year wage agreements have led to more consistent salary increases. This is typically from mining companies such as Harmony Gold, Amplats, Implats, De Beers, and Sibanye-Stillwater, all of which have entered into five-year wage agreements between June 2022 and April 2024.
With agreements now in their second or third years and rendering average increases of around 6% in 2025, this has turned out to be beneficial for workers in an inflation environment of 3,6%.
The phenomenon of multi-year agreements has also recently been observed in the state sector with the South African Local Government Association entering a five-year contract in September 2024, with the first year being an increase of 6% and thereafter real increases of between 0,75% and 1,25%.
Similarly, the 2025 public-service wage agreement covers a three-year period, with the first year awarding a lucrative 5,5%, about two percentage points above inflation and also again above what was planned for, according to Kruger.
This agreement is expected to cost the fiscus R23,4-billion more than originally budgeted over the next three years – one of the key reasons cited for National Treasury’s decision to raise taxes in the 2025 National Budget.
According to Kruger, based on a forecast average nominal salary increase of 5,3% and an average headline CPI projection of 3,6%, a real wage increase of 1,7% could be realised in 2025.
“This will be the second consecutive annual real increase and an important supporting factor for household consumption expenditure in 2025,” she says.
Furthermore, the cumulative 75bps reduction in interest rates, and two-pot retirement system withdrawals could also support consumer spending. The observed recovery in disposable income has already been reflected in healthier retail sales, with real growth in the four months to January 2025 at 5,9% notably higher than the corresponding period one year earlier.
“The improved outlook for household consumption expenditure is a welcome development – especially as an increasing number of downside risks begin to cloud the 2025 economic horizon,” says Kruger.
The global economy has become increasingly uncertain, not only due to ongoing geopolitical tensions but also the potential negative impact of the evolving global trade war. While the ultimate outcome on South Africa’s economy is still unclear, it is unlikely to be favourable and as such represents a downside risk to the real GDP growth forecast of 1,5% for 2025.