SALARY INCREASES FOR 2018 – A JANUARY UPDATE

 

Click here if you want to view our 2019 predicted salary increases. 

In our article published in October 2017, which forecast the South African salary increase for 2018 https://axiomatic.co.za/news/salary-increases-for-2018/, we stated that the general market increase would be between 6.0% and 6.5%. However, we did caution that the final increase would depend to a large extent on the trajectory of inflation and the exchange rate over the final months of the calendar year. Further, we also stated that it was too early to definitively decide on the salary increase and that we would provide regular updates.

The December 2017 CPI was published at 4.7%, which was slightly higher than November’s 4.6% reading. This slight increase was anticipated because of the 71c/l increase in the petrol price.

Two factors have emerged which will exert a profound influence on the proposed salary increase for 2018, namely:

THE RAND

The Rand Analysis 2017

As can be appreciated by examining the chart alongside, the currency has appreciated dramatically since early November 2017 when it was trading at 14.25 to the current rate of 11.90 to the US dollar. The salient reason for the strength of the local currency was the positive outcome of the ANC elections in December 2017 and the general weak dollar.

 

 

 

The strength of the rand will undoubtedly lower inflation in 2018 despite the prospect of higher oil prices. The MPC Committee acknowledged this fact at the January 2018 meeting where they stated that, “The main drivers of the more favourable forecast were the stronger exchange rate and lower electricity price assumption, following the 5.23% electricity tariff increase granted to Eskom by the National Energy Regulator of South Africa (Nersa)”.

The Committee went on to opine that, “The inflation forecast generated by the SARB’s Quarterly Projection Model (QPM) shows some improvement since November. The average forecast for 2017 is unchanged at 5.3% but has been revised downwards for 2018 and 2019 to 4.9% and 5.4% respectively from 5.2% and 5.5% previously.

Our model is currently predicting inflation in 2018 and 2019 at exactly the same levels at the MPC Committee – these projections are tabulated below:

AXIOMATIC INFLATION FORECAST

Rand inflation forecast 2018

CORE INFLATION

Of equal importance is the easing of Core Inflation – this decreased from 4.4% in November 2017 to 4.2% in December 2017. This was the result of lower goods inflation and services inflation decreased to 5.3%, a level last attained in early 2011. The fact that Core Inflation has decreased and will remain contained over the next few months, means that our current inflation prediction may have risks to the downside rather than the upside as previously thought.

CONCLUSION

Our October 2017 Report stated that real salary increases in 2018 would be restricted to an increase of 1.0% in 2018. Therefore, this formula derives:

Projected inflation 2018 4.9% + real salary increases 1.0% = projected salary increases for 2018 = 5.9%.

We believe salary increases for 2018 should be 6.0%.