KZN Provincial Treasury - BDSI REPORT: Tough economic times not impacting take-home pay increases:Nominal BDSI and BPPI compared RSS KZN Provincial Treasury - BDSI REPORT: Tough economic times not impacting take-home pay increases, yet...2016-05-13 Unexpectedly, salary payments are still beating inflation despite inflation rises.
The BankservAfrica Disposable Salary Index (BDSI) shows that take-home pay increased last month at the highest level since February 2015. Take-home pay rose by 9.1% maintaining the upward trend of the last four months. This increase on a year ago is surprisingly high given the tough economic times. January, February and March disposable salaries normally drop as the Christmas and year-end bonuses drop out of the calculation due to smoothing techniques employed in the BDSI. However, despite taking this into account the average disposable income was still well over the rate of consumer price inflation compared to a year ago. The CPI in February this year was 7%, which is higher than a year ago which was itself the highest increase since 2009. After inflation is removed from the equation, there was still a 2% real increase in take-home pay. This was the fourth month in a row that the increase in disposable income was higher than the inflation rate. The median or typical disposable salary (which is 74% of the value of the average salary) increased by 9.2% on a year ago to R9 809. At the current rate of increase the typical salary will take about three and a half years to catch up to the average salary. By way of explanation: average salaries tend to be higher as one needs only a few employees earning high wages to lift the average whereas the typical salary is the amount paid to the employee in the middle. The lowest income category, being that of those receiving less than R4000 pay per month, dropped to 17.3% of the total, which is down from 20.1% of the total in February a year ago. This is because both the median and average salaries increased which resulted in the lower salary categories decreasing, as people move up into the higher categories. The largest single category in the BDSI is the category that includes all the employees who get between R10 000 and R25 000 paid into their bank accounts. They currently account for 37.7% which is up from 35% of all salary payments in February 2015. The BDSI indicates that there have only been two months in the last 18 months where salary increases have not outperformed inflation, and one of those was due to the delayed agreement in the public wage agreement. Whilst many people disagree that their salary increases faster than inflation, most wage agreements are of an 'inflation plus' nature. Salary agreements are however backward looking and therefore include a clause that looks at inflation over the past year and adds between 1 and 2.5% to the actual official inflation average. Moreover many employees get promotion or "notch" increases too and in an environment where there are not many new job entrants at low salary levels the average salary is very likely to outperform the inflation plus agreement. Since all wage agreements are backward looking in nature, the upcoming salary adjustments will be far less than the rate of this year's expected inflation which is likely to be higher than last year's. The February CPI at 7% is already far higher than the 4.8% CPI that most public sector wage agreements are likely to have been based on this year. This means that one can expect salary adjustments to average around 7% to 7.5% this year including the notch increases which would bring average salary increases close to the now higher 7% inflation increase that is expected. Pensions start to lag salaries again February 2016 was the third month in a row that pension payments into bank accounts increased by a lower percentage than salaries after nine consecutive months of pension increases outperforming salaries. Average bankable pensions paid via the South African payment system increased 7.8% in February which is down on the average increase in 2015 which was 9.1%. While still above the rate of consumer price inflation by 0.8% it is clear that bankable pension increases are starting to lag take-home pay increases. The average pension rose to R5 992 in February 2016. However a similar data story to the disposable salary data shows that the average pension drops from the year-end levels in the early part of the next year. We have also noted that many pensioners receive an end of the year bonus payment that drops out of the smoothed BankservAfrica Private Pension Index (BPPI) calculation between January and March, as it was most likely paid in November 2015 according to the BankservAfrica payment system data. The average pension paid is exactly 45% of the average take home salary in February 2016. The typical private pension that is paid via the banking system in South Africa was R4 234 which was only 71% of the average pension. The BPPI has outperformed inflation by an average of 3% over the last two years with only one month showing an increase below the rate of inflation. It is unlikely that pensions will continue to outperform inflation, particularly when considering that the general equity market returns are barely outperforming inflation and interest rates are also just above inflation. This means that private sector pensions are unlikely to have high pension increases in coming months as they are a function of total returns as well as of percentage draw downs.
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Dr Clive Coetzee
General Manager: Infrastructure Management and Economic Services
KZN Provincial Treasury
Economist (PhD UKZN)
033 897 4538
http://www.kzntreasury.gov.za/ |
KZN Provincial Treasury - BDSI REPORT: Tough economic times not impacting take-home pay increases, yet...
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