South Africans getting poorer

South Africans are getting poorer as their take-home pay cannot keep up with inflation, negatively affecting their real spending power.

This is according to Investec chief economist Annabel Bishop, who referred to the latest data on take-home pay for March 2024.

BankServ recently reported that average take-home pay lifted in March by 5.0% year-on-year versus February’s 4.6%. This is still well below the CPI inflation rate of 5.3% recorded in March 

In real terms, take-home pay fell by 0.4% year-on-year in March. While this is a modest drop on its own, it follows a negative 0.7% reading in February, with inflation a key factor in real salary and wage growth.

Bishop said 2023 and 2022 mainly saw real remuneration fall, weakening Household Consumption Expenditure (HCE) growth in real terms and, therefore, lowering economic growth outcomes. Both 2022 and 2023 were high-inflation years.

In addition, consumers have suffered from a high interest rate, tax and unemployment environment, all weakening consumer confidence. Interest rate cuts have been delayed, with the risk of no cut in 2024.

Debt Busters recently reported that, in Q1 2024, consumers increased their demand for debt management, with debt counselling inquiries up by 22% and online debt management up by 30% compared to the same period last year.

“Consumers are taking strain in South Africa, with financial vulnerability elevated,” Bishop said. 

“The release of retirement savings under the two-pot retirement reform around the turn of the year will support HCE growth, adding to consumer income and taxed the same way.”

Even in the fourth quarter of 2023, the Eighty20 Credit Stress Report noted that the average ratio of monthly instalments to net income among the middle class is nearing 80%, marking a 14.5% increase over the year.

The Eighty20 National Segmentation is South Africa’s most comprehensive view of all 43 million South African adults, representing over R4 trillion in earnings per annum.

The first quarter of 2024 saw a 0.8% year-on-year rise in real take-home pay, which will support positive growth in HCE and, therefore, GDP last quarter. 

There is some hope for South Africans this year as CPI inflation is expected to average around 5.0% year-on-year over 2024, while BankservAfrica has forecasted an average salary increase of 6.1% for 2024.

A strengthening economy, with growth last year of 0.6% and this year expected at 1.1%, will also aid firms’ wage affordability.