South African workers’ real wages are likely to slump in the coming months due to higher living costs emanating from the effect of the Middle East conflict, setting up potentially fractious salary increase negotiations with businesses.
The first punch came in early April, when the retail price of petrol rose by R3.06 a litre and the wholesale cost of diesel jumped R7.51 despite the government intervening to soften the blow from higher global prices by cutting the general fuel levy added to the pump price by R3.
“That already means workers’ wages are under pressure,” said Matthew Parks, parliamentary co-ordinator for labour federation Cosatu.
“Those workers who have cars are now paying an extra R3 a litre [for petrol], and those who use public transport, be it taxis or buses, have already experienced significant fare hikes. The other supplementary goods will start coming in soon, but already workers are feeling the pinch.”
Lower-income workers already spend about 40% of their salary on transport costs, and that is likely to increase if the Middle East war keeps global oil prices elevated, making another fuel price increase in May unavoidable for South Africa, which imports most of its oil and refined petroleum products.
“Next, of course, are the electricity and food costs. And someone who earns only R5,000 is going to be much harder hit than somebody who earns R20,000 or R100,000,” Parks told Business Day, predicting the fuel price and its second-round effects on other prices such as food would be front and centre during wage talks this year.
“Each workplace has different seasons for wage negotiations. The public service, for example, is already set with a 4% increase for this year. Other sectors might only have the wage negotiation in June, July and August. But it [fuel] will definitely be a factor,” he said.
The sharply higher fuel prices and impact on other costs are likely to drive inflation higher, which is likely to come in at about 3.3% in March, up from February’s 3%, which was exactly in line with the new South African Reserve Bank (SARB) target, said Dawie Roodt.
“The April number is going to be bad…. That’s going to be 4.5% or 5%, and the same goes for May and the months thereafter,” said Roodt, chief economist at Efficient Group.
“The minister of finance has budgeted for a 4.4% wage increase for civil servants, so if inflation rises to 5%, as I expect, they will effectively receive less than the inflation rate, which means a real reduction in their wages.”
But businesses grappling with higher input costs are unlikely to be in a position to offer anything higher than 4%, and the SARB will discourage any settlements that anchor inflation expectations above its 3% target, Roodt warned.
“Labour leaders are not stupid; they obviously will go for the bigger numbers, saying that the inflation is likely to accelerate. They are probably going to go for something like 6% or 7% because they want a real increase as well, not only to keep track with inflation,” he said.
“But business is going to push very, very hard against that. And I know many businesses are on the brink. If you really push them a little bit, they’re going to close down. And the Reserve Bank will keep on selling the message that inflation is [currently] 3%, and of course, the Reserve Bank would like to see inflation expectations remain relatively low.”
The risk of above-inflation wage agreements is that the SARB might raise interest rates to keep price pressures in check, said Frank Blackmore, lead economist at professional services firm KPMG.
“The higher fuel price is going to affect people’s pockets … and it’s going to affect people’s real wages,” he said.
“But the danger is that when the Reserve Bank starts seeing the second-round effects moving through the economy, and that includes people adjusting wages, it will have to act by actually increasing interest rates and therefore making that burden even greater in the short term to bring inflation down.”
The looming friction between labour and business could raise the prospect of strikes, Roodt said. He pointed to the fact that workers are also wary of risking their jobs, given the unemployment rate of 31.4% and even higher when considering discouraged job seekers.
The higher fuel price is going to affect people’s pockets … and it’s going to affect people’s real wages.
— Dawie Roodt
Added to that, the now wobbly alliance between labour, the South African Communist Party (SACP) and the ANC, which lost its 30-year grip on power in the 2024 general elections, forcing it to form a government of unity with other parties, means unions no longer have the same muscle they used to flex in previous years.
“Labour in the past played an important labour role, but they also played a very important political role, but labour is not there anymore. I don’t think they are as powerful as they used to be, and they are losing membership,” Roodt said.
Cosatu’s Parks agreed that workers are now more vulnerable during wage negotiations.
“When you have an economy of 40%-41% unemployment, people will be very reluctant to do anything to jeopardise … their job,” he said.
“Also, only about 30% of workers fall under collective bargaining. So in most workplaces, there are no wage negotiations between the farmer and the farmworker or between the restaurant manager and the waitress. Management just decides, I’m giving you a 3% increase; that’s it.
“A lot of workers are also quite reluctant to unionise because they fear being victimised by a boss who will then say, ‘You’re a troublesome child; out you go.’”
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