South African salaries are forecast to increase by 5.5% for 2025, according to Axiomatic, a payroll consultancy firm.
Axiomatic said that the 2025 forecast ignores quantitative factors like:
– economic growth
– union demands
– trends in compensation and benefits
– the unique financial position of the company.
The starting point of the forecasting process is to estimate the projected inflation rate for 2025.
According to Axiomatic, salary increases are “implicitly linked” to inflation; where inflation is one of the most essential factors when deciding on the amount of the salary increase.
“Employees want to retain the same purchasing power with their remuneration from one year to the next,” the consultancy said.
“Consistent with the Axiomatic methodology, a forward looking approach must be adopted where inflation is forecasted for 2025, and the proposed salary increase is based on this result.”
Any increases in salaries will be “forfeited” to inflation.
According to Axiomatic, their 2025 forecast is closely in line with the South African Reserve Banks (Sarb’s) Monetary Policy Committee of 4.4% which was predicted at the July 2024 meeting.
“Importantly, 4.5% represents the mid-point of the MPC’s 3% to 6% target range and the target percentage they want to anchor in terms of market expectations,” Axiomatic said.
Historically, the method used in South Africa to determine salary increases in the past was to add 2% real increase to the forecasted inflation figure.
Axiomatic said: “However, there has been a discernible trend over the last few years of lower real salary increases being granted.”
This is backed by the 5-year moving average which has been steadily declining in recent years.
2022 and 2023 were anomalies as inflation rose to higher levels than what was envisioned, when increases were determined at the beginning of the year which cut down the 5-year average.
“The conclusion of the analysis is that a 1% real salary increase is the new normal,” Axiomatic said.
IOL Business