FEBRUARY 2025 UPDATE
In August 2024 (click here) we published our 2025 South Africa Salary Increase Forecast article and revisited our forecast in November 2024 (click here) where we encouraged clients to adopt a scientific approach to the preliminary salary increase forecast and then to use the unfolding economic data over the next few months to update the original forecast. Wise words as inflation has been moving persistently lower. The October 2024 inflation rate of 2.8% in October was the lowest reading since the 2.2% recorded in June 2020 when we were in the throes of the Covid pandemic. Inflation has ticked up slightly to 3.9% in December 2024.
The salient reasons for the slight increase in December 2024 can be attributed to housing and utilities (4.4%), miscellaneous goods and services (6.6%), food and non-alcoholic beverages (2.5%) and alcoholic beverages and tobacco (4.3%).
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 January 2025 MPC meeting when they stated, “The risks to the inflation outlook are assessed to the upside. In the near term, inflation appears well-contained. However, the medium-term outlook is more uncertain than usual, with material risks from the external environment. Domestic factors such as administered prices are also problematic.”
In view of the lower inflation, we have revised our forecast for 2025 inflation down from 4.2% to 4.0%. The revised detailed forecast is:
The lower 2024 inflation does mean that employees received a higher real salary increase in 2024 – 1.5% compared to the “new normal” yardstick of 1.0%.
Our August and November 2024 articles recommended a 5.5% salary increase for 2025, and one must question 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 Total Cost To Company (TCTC) remuneration model in South Africa, many employees will have to foot the bill themselves for these increases.
- The National Energy Regulator of South Africa has announced a 12.7% tariff increase for Eskom. Eskom was seeking a 36.% increase so these lower increases will aid both inflation and consumers.
Despite the above concerns, we are lowering our recommended salary increase forecast to 5.0%. The salient reason is that we expect inflation to remain benign and are concerned about growth. Growth contracted in the 3rd quarter 2024 because of agricultural production and while we do see a rebound in the last quarter of 2024, we expect growth to languish at 1.7% in 2025- hardly a booming economy facilitating large salary increase.
2025 RECOMMENDED SOUTH AFRICA SALARY INCREASE 5.0%
Unsure how to navigate 2025’s salary landscape? Reach out to our team for a personalized consultation and strategic advice.
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