Latest data suggests upward movement will contribute to consumer recovery in coming months. South African salaries increased for the fifth consecutive month in July with average salaries and pensions rising – leading to the strong possibility of a consumer recovery. This is according to the latest monthly data from BankservAfrica’s Disposable Salary Index (BDSI) and Private Pension Index (BPPI).
The BDSI, a unique time series which tracks and measures salary growth in South Africa according to monthly salaries paid into the BankservAfrica payments system, reflected an increase in real salaries of 2.5% in July, representing the fastest increase since August 2015. This while average disposable salaries increased at a faster pace than inflation.
This upward movement is also evident at nominal levels, where salaries increased at 7.6% – the same experienced as March 2017 and the highest since December 2014.
The salary growth is reflected in increased consumer spending with the retail sector reaping the benefits. Additionally, car sales are no longer reflecting declines.
While the average salary growth can be difficult to measure – as the extent of salary increases differ between individuals – median salaries, which reflect a person’s typical salary, proves the average salary growth.
The real median salary is at an all-time high at R10 680 per month while the average salary is still below October 2015. The median disposable salary increased by 4.2%, indicating the majority of increases were in the middle and lower end of the salary distribution. This increase is the highest since July 2013.
As such, the median salary is 75.9% of the average salary in disposable terms. This is up from 72.7% in July 2012. Average salaries have lagged the median salary increases helping the median catch-up.
These show that the typical employee in the formal sector is getting higher salary increases compared to a few years ago.
However, as the average disposable salary is still below the average take home pay levels at the end of 2015 and the beginning of 2016, individuals feel that they are taking home less. Average salaries have not yet caught up to the highs experienced 18 months ago.
Pensions increased at a slower rate than salaries for first time in over 18 months
July’s BPPI shows that pensions increased – though at a lower rate than the average disposable salaries. This is the first time since December 2015 that this has occurred.
However, pensions paid into bank accounts in South Africa have again increased above the rate of inflation over the last year by 2.4% on average. The median pension also beat inflation but remains lower at 1.4% – suggesting those with smaller pensions are not seeing much of an increase in their pension payments. The average real pension paid into a bank account was R6 584 while the typical (median) pension was R4 547. The median pension was only 69.1% of the average pension.
The increases in the BPPI and BDSI will help consumer recovery in South Africa and build a stronger consumer in the coming quarters. These should add growth to the economy – and pick up GDP albeit not at a pace one would hope for.
Mike Schüssler is the Chief Economist at Economists dotcoza.