Take-home pay fails to keep up with inflation

The cost of food remains the single most concerning factor in the survival of South Africa’s 61 million residents. Photographer: Armand Hough / Independent Newspapers.

The cost of food remains the single most concerning factor in the survival of South Africa’s 61 million residents. Photographer: Armand Hough / Independent Newspapers.

Published Mar 31, 2024


South African Reserve Bank (SARB) Governor Lesetja Kganyago affirmed this past week that the repo rate will hold steady at 8.25%, in line with predictions by analysts and economists across the country, based on inflation for February coming in higher than anticipated.

This dispelled hopes that the SARB will consider cutting interest rates any time soon with May the earliest the central bank could consider interest rate cuts.

Kganyago has made it clear that the bank won’t change policy until inflation is sustainably at 4.5%, with expectations now that it will slow down and average 5.1% this year and 4.6% in 2025, a 0.1 percentage point nudge up from last month’s forecast for this year.

The governor pointed to food prices, geopolitical risks, their impact on global supply chains and energy markets as some of the upside risks to the inflation outlook.

Economists now foresee the first 25 basis points cut to 8% only in the second half of the year, on the back of a rise in annual consumer inflation to 5.6% in February, from 5.3% in January and 5.1% in December, as reported by Stats SA.

South Africa’s repo rate is expected to fall to 7.5% in November, loosely translating to three consecutive cuts in meetings from July to the end of the year.

With more than half (55%) of the country’s citizens currently only able to cover costs for food, shelter and the basics, this begs the question: “Will South Africans be able to hang on and hang in until the government finally decides to cut the repo rate?”

Neil Roets, the CEO of Debt Rescue, said, aside from the relentless cost-of-living increases, the pressure on the disposable income of working South Africans was the biggest red flag right now, as take-home pay fails to keep up with inflation.

“The only way to turn this around is to lower inflation which, in turn, will lower interest rates. Surely the plight of the country’s workers and their families should be foremost when making decisions that impact the population? Especially as these are the very taxpayers keeping the economy going,” he said.

This sentiment concurs with the latest BankservAfrica Take-home Pay Index (BTPI), which measures the average nominal take-home pay among approximately 4 million salary earners in South Africa.

The index shows the average take-home pay for the period ending in December 2023, coming in at R15 409 - 5.6% higher than the R14 596 recorded in December 2022.

However, with inflation increasing over the period, employees have earned less in real terms for the third year running.

The cost of food remains the single most concerning factor in the survival of South Africa’s 61 million residents.

NIQ’s Consumer Outlook Report for 2024, which explores critical trends and insights that shape the consumer landscape in South Africa and 22 other countries, shows that almost 50% of South Africans feel they are in a worse financial position than they were in compared to a year ago – and, no surprise – their biggest concern is the cost of food as they tighten their belts looking to the future.

While it’s true that inflation for food and NAB slowed to 6.1% in February, with most categories recording lower annual rates, except for hot beverages, oils and fats, it is cold comfort to the millions of households across the country struggling to put enough nutritious food on the table.

A case in point is the lingering impact of rising egg prices continuing to affect the milk, eggs and cheese category, with eggs now a massive 30.7% more expensive than a year ago.

“A worrying trend among the big supermarkets is the option of purchasing groceries on credit,” said.

“We continue to see a trend that consumers are turning to credit to put food on the table, in the form of store cards, credit cards and payday-loans. This sets a dangerous precedent among consumers who are already battling to fulfil their debt obligations,” he said.

Middle class South Africans now spend an estimated 73% of their earned income servicing debts and other fixed cost expenses – leaving just 20% of their earnings to buy food, medicine, petrol and transport along with other daily necessities.

The middle class folk pay cheque to pay cheque with limited accumulated savings, limited fixed capital formation and rising debt service obligations – and this leads to associated marked increases in consumer debt defaults.

“My advice to those who find themselves in a debt trap is to seek help through debt review, where a registered debt counsellor can assist you to manage your financial predicament. It is never too early to ask for help,” Roets noted.