South Africans under pressure as prices increase while real salaries are stagnant

South African workers are under immense pressure, as prices for necessities are rising, while real income growth is stagnant, and the job market offers fewer opportunities.

This is expected to play a significant role in South Africa’s anticipated lacklustre growth for 2025, with the first quarter already off to a weak start.

Investec Chief Economist Annabel Bishop explained that real income growth fell by 1.1% month-on-month in May, following April’s 2.2% contraction.

This means income growth is down 5.1% for the first two months of 2025’s second quarter compared to the same period of the first quarter.

This decline points to South Africa’s challenging consumer environment. Economic growth expectations for the year have already been downgraded, and 58% of businesses are dissatisfied with conditions.

“The drop in real incomes over the past three months indicates the stress corporates are under that has impacted staff renumeration in turn, despite low inflation, adding to weak consumer demand,” Bishop explained.

Household Consumption Expenditure (HCE) is one of the biggest drivers of GDP growth, and its decline would spell bad news for South Africa’s economy.

HCE experienced only modest growth in the first quarter of 2025, at 0.4% quarter-over-quarter, compared to 1.1% growth in the fourth quarter of 2024.

Retail sales inflation – a key indicator of the cost of living and consumer purchasing power – also came out at a low 1.5% year-on-year in Q1 2025, well below CPI inflation.

Bishop explained that retail sales inflation is a better measure of consumer demand pricing than CPI inflation.

This is because CPI inflation includes state-administered prices and goods priced as a consequence of the rand and international commodities’ prices.

BankservAfrica’s April 2025 Remchannel Salary and Wage Movement Survey recorded an average salary increase of 5.82% in 2025, compared to 6.09% in the previous year. The organisation attributed this to a more cautious approach by employers.

This survey also revealed a reduced overall staff turnover rate of 13.5%, a decrease from the previous rate of 15.5%, reflecting a market with fewer new job opportunities due to widespread downsizing by companies.

Bishop said this survey demonstrates the financial pressures employees are under, as 39% of those who resigned were seeking better pay and career growth, while 31% left due to dissatisfaction with their current roles.

Silver linings

While things appear gloomy for South African workers and consumers, there are some silver linings that point to potential improvement in 2025.

For example, financial markets are increasingly factoring in another 25 basis point cut in South Africa’s interest rates after May’s easing. 

This would bring significant relief to South African consumers with interest rate-linked debt, like home repayments.   

In addition, part of the reason sentiment has grown for a further cut in South Africa’s interest rate is the low CPI rate, primarily driven by low food inflation.

CPI inflation has remained below 3.0% for three months this year to May. While June figures have not been released yet, they are also expected to be sub 3.0%. 

Bishop pointed out that the ceasefire in the Middle East and consequent drop in oil prices have also removed fears over a sharp spike in fuel prices in South Africa.

This would have driven inflation in the country, disrupting the modest increase in the cost of living environment.

Another positive sign is that the rand has strengthened against the US dollar as the greenback has weakened upon risk aversion subsiding on the ceasefire.

The local currency reached R17.69/USD on Wednesday, 25 June 2025, strengthening from R18.15/USD on Monday after US airstrikes on Iran’s strategic sites.

Bishop explained that a further interest rate cut this year would not only provide relief for consumers but also bolster consumption, aiding South Africa’s economic growth. 

Another lifeline for South African consumers is the new two-pot system, through which individuals are reported to have made close to four million withdrawals.

SARS previously reported that R57 billion has been withdrawn, with the taxman collecting R15 billion in taxes as a result. 

Bishop said half a million of those were repeat withdrawals, with individuals using a significant portion of the funds to draw down debt.

SARS Commissioner Edward Kieswetter expects the repeat withdrawals to continue because the financial distress of people has not changed, with pension withdrawals aimed at preventing resignations to access pensions. 

“Therefore, in that respect, the two-pot retirement system is the closest to a Goldilocks balance we can get to allow earlier access but also enforce preservation,” the tax boss said.

While withdrawing from retirement savings is not ideal, the two-pot system is designed to cause two-thirds of retirement savings to be preserved. 

“Overall, consumers are still expected to see some improvement in their finances this year, reducing vulnerability,” Bishop said.