The Economy and Pay Increases in South Africa
Wage increases do not happen in isolation. The South African economy is one of the factors that has an influence on increases. To understand the influence, you have to know the different economic indicators.
All indicators are accessible from the South African Reserve Bank. The first indicator to take note of is the inflation rate.
What is Inflation?
Inflation is a rise in prices caused by an increase in money supply or demand. The South African Reserve Bank uses the Consumer Prices (CPI) and Consumer Price Index (CPIX) to determine the current inflation rate.
Consumer Prices is based on the cost of a basket of necessities consumers are likely to buy per month.
Consumer Prices Index is the CPI excluding interest rates on mortgage bonds.
How Inflation influences Pay Demands
When negotiating for salary increases, wage demands are linked to inflation. Therefore the rate of inflation is putting downward pressure on wage settlements. Employers look to benchmark increases against the current low levels of inflation and expected inflation. Also, the Reserve Bank wants wage agreements to be forward-looking or to reflect the rate of inflation that is expected to prevail for the duration of the agreement.
Low Inflation Rate, Low Pay Increase
After living with a high inflation rate for more than two decades, South Africans will have to start getting used to living with a low inflation rate and lower salary increases. With a lower inflation rate (3,9%), this means that workers would have to settle at 3% or less.
Low Interest Rates
As inflation reduces, so too will interest rates. Important interest rates to take note of are the Repo rate and the Prime rate.
- Repo rate or repurchase rate:
The rate at which the private (sector) banks borrow rands from the SA Reserve Bank.
- Prime overdraft rate (predominant rate):
The benchmark rate at which private banks lend out to the public.