Launched on June 1, the stoppage has cost public servants about R3 billion (about P2.61 billion) in lost wages so far and looks set to push inflation up by another half a percentage point, making it even harder for the central bank to get inflation back inside its three to six percent target range. Overseas investors are starting to take note, as other labour unions in the continent's biggest economy seize the baton for double-digit wage rises."Concern over the nationwide strike has been escalating in recent days with unions warning of a total economic shutdown," says Moody's.com, a subsidiary of Moody's Investors Service.
Along with the threat of near-term social unrest, the wage negotiations were set to boost labour costs and discourage firms from hiring new workers, keeping the country's steep jobless rate of more than 25 percent in place, it said.
Hundreds of thousands of civil servants have joined the strike, which is the first by South Africa's public sector since September 2004 - the first one only lasted for a day.
The unions have lowered their demand for an annual pay rise to 10 percent from an initial 12 percent, while the government has raised its offer to 7,25 percent from six percent.
Negotiators are saying unions are ready to settle for an increase of eight percent, two percentage points above the upper end of the target range for inflation measured by the CPIX, which breached six percent for the first time in nearly four years during April, rising by 6,3 percent."There are obvious knock-on effects," said T-Sec economist and labour specialist Mike Schussler.
"There is an assumption that once the state gives way, the municipalities, parastatals and private sector will follow with similar wage demands."
Since the strike began, mining unions have demanded a 15 percent annual pay rise and engineering unions 11 percent, while Eskom employees want 13 percent. The agreements are all multi-year packages, which means the price pressures will stay in place over an extended period. Schussler calculates that every percentage point increase in annual wages beyond seven percent- which is where he thinks inflation will peak this year - will push the CPIX up by another half a percentage point.
Other analysts are less quick to predict the outcome, but point out that labour productivity has to rise by an annual rate of two percent to keep a broad-based eight percent wage rise from putting more pressure on the inflation target. "It's difficult to say, but a wage settlement of 8 percent to 9 percent would have a significant impact on inflation and force interest rates higher," said ETM Managing Director George Glynos.
Unit labour costs, which measure wages against productivity, began to rise last year, accelerating to 5,9 percent in the final quarter from 5,3 percent in the third and 3,5 percent in the second, Reserve Bank figures show.
When the Bank raised the lending rates by half a percentage point on June 7, Governor Tito Mboweni said the outcome of wage negotiations had not been factored into its already grim inflation outlook.
At that time, the Bank said it expected inflation to remain above 6 percent for most of the coming year, peaking at an average of 6,3 percent in the first quarter of next year. (Business Day)
