The average nominal take-home pay reached R16?358 in July, reflecting a 5.9% year-on-year increase.

PERSONAL FINANCE

The past few years have been hard on households. Load shedding, a weakening economy, high inflation and rapidly rising interest rates have made it harder to make ends meet.

But, in the past few weeks, we have started to see some encouraging data that suggest things may finally be on the way up.

PAY INCREASES

The BankservAfrica Take-home Pay Index (BTPI), which measures the average nominal take-home pay, saw a significant improvement in July, thanks to a better business environment and renewed confidence. 

The average nominal take-home pay reached R16 358 in July, reflecting a 5.9% year-on-year increase.

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When adjusted for inflation, it showed a 0.9% year-on-year growth. As Elize Kruger, an independent economist, explains, confidence by employers about the economy drives higher salaries and the take-home pay has so far exceeded expectations in 2024, reflecting an improved business environment.

“The relief from load shedding over the past five months, moderating inflation, a new political landscape, and the possibility of lower interest rates as early as September have all contributed to a much-needed boost in confidence.”

Kruger explains:

INFLATION DECLINES

Falling inflation is one of the driving factors of real salary increases. The rate at which average prices are increasing (inflation) has slowed to 4.6% but, more importantly, food inflation has reduced significantly.

According to Paul Makube, senior agricultural economist at FNB Commercial, food inflation reached a 55-month low in July, of 3.9%.

This does not mean food prices are declining, but the rate they are increasing is slowing down. If salaries are increasing above the rate of inflation, then there will be a net improvement for household income.

ECONOMIC GROWTH

Old Mutual Investment group’s chief economist Johann Els is optimistic about the outlook for the economy, and especially the rand.

With the reduction in load shedding and reforms at Transnet, we could expect the economy to grow at around 3% from the current 1% economic growth rate.

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While not enough to transform the economy or significantly reduce unemployment, it should at least create some further jobs and confidence in the economy.

Els believes that, at current levels, the rand is significantly undervalued and, while it is difficult to predict exactly when the rand will appreciate, Els expects the currency to firm as much as R14/$ to R15/$ in the shorter-term.

Els says:

RECOVERY IN PROPERTY MARKET

We are also seeing signs of improvement in the housing market. Standard Bank issued a press release that home loan approvals are increasing for the first time since 2023.

In 2023, the mortgage industry saw a significant drop in home loan approvals due to “fewer application volumes as a result of affordability constraints and low consumer confidence levels. This reduced pool of buyers has consequently led to heightened competition among industry players.”

However, the bank believes the tide is turning, with a modest 1% growth in Standard Bank’s lending book for the first half of 2024.

The bank says this increase is driven by more people wanting to buy homes. This demand is no doubt being driven by the expectation of rate cuts which are expected to start in September with a cut of 25 basis points.

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Banks expect the prime interest rate to reduce from the current 11.75% to around 10.25% by the middle of next year.

But rates are unlikely to be cut further than 10.25%. Toni Anderson, the head of Standard Bank Home Services, believes we will see a significant recovery in the property market.

“Our political landscape stabilised more quickly than many expected after the elections, with the government of national unity. Coupled with our currency’s performance of late, there is potential for renewed economic stability, which may boost consumer confidence.”

Anderson said:

This renewed sense of optimism is possibly why individuals surveyed in the Old Mutual Savings and Investment Monitor showed far more positivity regarding their economic outlook.

Levels of financial satisfaction are the highest since 2015 and financial stress levels are the lowest since 2020.

South Africa still has enormous challenges and these green shoots will not solve our devastating unemployment levels, but it will at least ease some of the pressure on households.