The average pay of South Africans has declined more than a tenth over the past year, according to the latest data from the Altron Fintech Household Financial Resilience Index (Afhri).
The figures for the last quarter of 2022, released on Monday, showed the average monthly remuneration in the formal and informal sectors declined from R18,470 to R16,370 year on year in real terms, which accounts for inflation.
This was in part because 1.4-million new jobs were created in 2022 in lower-paying sectors such as hospitality and tourism, which is recovering from the devastating effects of the Covid-19 pandemic as tourists returned to SA.
“The other reason is Covid scared people who temporarily lost their jobs, or maybe even permanently, and they now shy away from asking for a raise in the private sector. They are just too glad to have a job,” economist Roelof Botha, who compiles the index for Altron Fintech, said in an interview with Business Day.
The latest reading of the index, which gauges the finances of households and their ability to cope with debt, was 111.5. This is slightly higher than the 109.9 in the third quarter, but lower than the score of 112.7 a year ago, showing mounting pressure on households, largely because of high inflation and interest rate hikes.
“Given the 2014 base level of 100, this means that the average household’s financial disposition has improved by 11.5% in real terms over nine years. However, the average annual improvement since 2014 is only 1.2%, which serves as a clear indication of the economy’s underperformance,” Botha wrote in a statement.
State capture, corruption and public sector mismanagement ravaged SA’s economy between 2009 and 2018, worsening infrastructure issues and eroding business confidence. Energy, roads and railways suffered in particular.
Covid-19 and lockdown regulations then decimated the economy in 2020 and inflation increased largely because of freight shipping rate increases and supply chain constraints.
One of the biggest boosts to households for dealing with their short-term debt was the surrendering of long-term insurance, which is when a policyholder withdraws the value of the fund the policy meant to pay out, growing 27.2%.
This propped up the index, but as Botha points out, this helps households address hardships they are facing now, but it goes against future financial stability and is a “clear sign” of how higher inflation, interest rate hikes and poor economic growth have filtered through to households.
To help with this, Botha argues the SA Reserve Bank should temporarily raise its inflation target band from 3%-6% to 4%-7% as it would allow for a 100-basis point reduction in the repo rate and “to breathe some life into a stagnant economy.”
Headline consumer price inflation (CPI) rose 7.1% year on year in March and prices have remained above the 3%-6% target range since peaking at 7.8% in July, driven largely by factors beyond the SA Reserve Bank’s control such higher transport costs and rising food prices as stores look to recoup the costs of dealing with power cuts and SA’s energy crisis.
“If inflation declines to below 7%, and it will happen in the next two months, then it is inside their target band and they don’t have to raise interest rates further and can start to lower them,” he said.
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