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Cape Town - For the second consecutive month, disposable salaries declined in real terms due to increased inflation.
This is demonstrated in the latest BankservAfrica Disposable Salary Index (BDSI) and Private Pension Payments Index (BPPI) released on Wednesday. BankservAfrica tracks take-home pay and pensions that are paid via the SA payment system on a monthly basis and provides insights on consumers as well as salary and pension trends.
"This is a very hard time for the economy. Most of the pain is probably going to be felt in parts of the private sector where salary increases can no longer be afforded," Mike Schüssler, chief economist at Economists dotcoza, told Fin24.
"This is the harsh reality. This time round a lot of the retrenchments will probably be at middle management level or even higher."
The latest indices show the growth gap between salaries and pensions continues to widen. This is a trend that began in January due to economic pressures, according to the report.
The impact of higher inflation and the weak economy is clear, stated the report. Although salaries increased in nominal terms by 4% year-on-year, the inflation rate is far higher.
According to the report, this is exacerbated by the fact that formal sector employees are not getting salary increases to make up for this. High-income earners are also bearing this burden.
“The decline of 2.2% year-on-year in real terms in July is the biggest since early 2015 when government salary increases were delayed by three months,” explained Dr Caroline Belrose, head of knowledge and risk services at BankservAfrica.
Schüssler indicated that take-home salaries are being squeezed further by increases in deductions on gross salaries, such as personal tax hikes, and medical insurance, which increased by 9.2% - nearly one-and-a-half times the inflation rate.
Furthermore, the data shows that the weakened economy has reduced the probability of bonus payments, while the strained economic conditions have lowered hopes of salary increases, in his view.
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Public sector
The report points out that the only notable difference was in the public sector. It represents the largest employment sector and salaries here increased by 7.6%.
"If it had not been for the late payment of government salary increases last year, the data shows that most of the month’s salary increases would have been below the rate of inflation. As a result, government employees, with two effective salary increases – due to the late payment of salaries last year – had a substantial impact on salary increase in this month’s BDSI," according to the report.
Pensions
The indices show that the trend in pensions is far more positive than that of salaries, a trend BankservAfrica said is persistent.
Private pensions paid into bank accounts via the BankservAfrica payment system remained at levels of less than half of disposable salaries. The percentage change, however, is an increase in both real and nominal terms.
“Pensions increased by 8.5% year-on-year (y/y) in nominal terms. Even when taking inflation into account, pensions increased by 2% y/y. For a full 24 months, average private pensions have increased by more than the inflation rate,” said Belrose.
According to Schüssler, the higher increase has to do with the fact that pension funds have been using their full 25% allotment of foreign investments. In rand terms, these investments have increased sharply. Local investments have also increased, although not as much as foreign investments.
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