NOVEMBER 2024 UPDATE
In August 2024, we published our 2025 South Africa Salary Increase Forecast article Click Here, in which we suggested that a salary forecast is not difficult. We encouraged clients to adopt a scientific approach to the preliminary salary increase forecast and then use the unfolding economic data over the next few months to update the original estimates. These were wise words, as the October 2024 inflation rate was a shocking but welcome surprise.
Inflation slowed from 3.8% in September to 2.8% in October – the lowest reading since the 2.2% recorded in June 2020 when we were in the throes of the Covid pandemic. The salient reasons for the dramatic drop were the lower petrol price, local and international food prices, and the stronger rand because of the optimism associated with the formation of the Government of National Unity. Importantly, this reading of 2.8% is below the bottom of the Reserve Bank’s 3.0% to 6.0% target range.
The bad news is that there will be pressure on inflation over the next few months. The main reasons include the possible changes in US economic policy emanating from a Trump presidency, potentially higher oil prices resulting from the escalating Ukraine war and increased electricity and administered prices.
The MPC also warned about possible higher inflation at the November 2024 MPC meeting when they stated, “In the near term, inflation appears well contained. However, the medium-term outlook is highly uncertain, with material upside risks. These include higher prices for food, electricity and water, as well as insurance premiums and wage settlements.”
Our revised inflation forecast is:
Our forecast for 2024 has decreased from 4.9% to 4.5%. Our forecast for 2025 has been revised lower from 4.5% to 4.2% and is slightly above the MPC Committee’s forecast of 4.0%.
This does of course, mean that employees will receive a higher real salary increase in 2024 – 1.5% compared to the “new normal” yardstick of 1.0%.
Our August article recommended a 5.5% salary increase for 2025, and one must pose the question of whether this incoming data changes this recommendation. A purely scientific approach would recommend the following:
Inflation in South Africa is notoriously difficult to predict as same is always subject to exogenous shocks. One must recognise this danger and the concern expressed by the MPC Committee that “…the medium-term outlook is highly uncertain, with material upside risks”.
Cognisance must also be taken of the following:
- The average real salary increase granted to employees over the last 5 years has only been 0.5%. A slightly higher 1.3% real salary increase this year will compensate employees for the erosion of their disposable income over the last 5 years; and
- We highlighted in our recent article (click here) that medical aid costs will increase by between 9.30% and 12.75% on 1 January 2025. Given the dominance of the TCTC remuneration model in South Africa, many employees will have to foot the bill themselves for these increases.
Given this, our recommendation is to stick to our August 2024 forecast:
2025 RECOMMENDED SOUTH AFRICA SALARY INCREASE 5.5%
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