The widening gap between salaries and inflation gobbles disposable income

31 May 2023

The environment remains unfavourable for comfortable wage increases or job creation and businesses will likely continue in ‘survival mode’.

While thousands are sighing with the relief of having just received a paycheck, the gap between salaries and inflation continues to widen. The BankservAfrica Take-home Pay Index (BTPI) for April showed a drop in the number of salary payments (fewer jobs) while the average nominal take-home pay fell by 4.2% year-on-year.

Annual average take-home pay vs consumer inflation

(Source: BankservAfrica, Stats SA)

Shergeran Naidoo, BankservAfrica’s head of stakeholder engagement, says companies come under strain from harsh load shedding, high production costs, rising interest rates and moderating demand, and the environment remains unfavourable for comfortable wage increases or job creation.

He expects that businesses will likely remain in “survival mode” for an extended period.

Independent economist Elize Kruger says the BTPI has also declined in real times as inflation remains at elevated levels, further eroding the purchasing power of average salaries. In real terms, the average salary was R13,524, falling as much as 10.4% from a year earlier.

Despite April’s headline inflation lowering to 6.8% year on year and forecasts suggesting prices could moderate at a faster pace in the coming months, the recent depreciation of the rand could throw a spanner in the works if the currency remains at weaker levels for a prolonged period.

As Nedbank economist Nicky Weimar outlines, the rand came under severe pressure in recent weeks, plunging to R19.52 against the US dollar on 19 May as diplomatic tensions intensified amid speculation that South Africa has been supplying arms to Russia.

Economic commentary from Nedbank notes that the government’s tensions with the US over Russia were the catalyst for the step-change to a lower level.

“Since then, the rand has depreciated even further, hitting a new record low against a resurgent US dollar of R19.86 on 30 May before pulling back slightly to R19.76,” he says, adding that the rand’s renewed depreciation comes from stickier-than-expected inflation caused by surging production costs driven by the enormous cost implications of load shedding and earlier rand weakness.

Unemployment looks dire, with little hope

BankservAfrica’s data reflects that after two consecutive months of moderate increases in the number of salaries paid into South Africans’ bank accounts, more than half of these gains were reversed in April, with 123,000 fewer salaries paid.

“The South African job market is still recovering from heavy job losses incurred from the impact of the pandemic; a challenge amid the low growth reality in South Africa,” notes Kruger.

The unemployment crisis is not helped by the fact that the country has a constant growth in its working-age population.

Kruger says that with little indication of a different economic environment in 2023, and an even lower economic growth forecast for 2023 compared with 2022, the job market – and salary adjustments – are likely to remain lacklustre for the remainder of the year.

According to the International Labour Organisation, the unemployment rate in sub-Saharan Africa this year is expected to be 6.3%. South Africa’s unemployment rate, as per Stats SA, was 32.9% in the first quarter of this year, despite the addition of 427,00o jobs over the past six months.

“Despite the job gains over the past six quarters, the economy has failed to keep pace with the growth in the population over an extended period, and Covid aggravated an already desperate situation,” says Stanlib. DM

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Annual average take-home pay vs consumer inflation

Unemployment looks dire, with little hope