MONTHLY real wages in the formal sector dropped sharply in February, fuelled by large declines in wages in the transport, storage and communication sectors.

Despite the concerns raised by the Reserve Bank about the adverse effect of high wage growth on the inflation outlook, data released yesterday by Statistics SA showed average monthly real wages and salaries including bonus and overtime payment dropped by an annual 2,2% in February, from R5184 to R5068.

For the three months to February, real wages plunged 5,9% compared with the previous threemonth period.

The Bank has cited high wage growth as one of the main risks to its inflation outlook, with unit labour costs the ratio between wages and productivity having increased from 4,1% in 2001 to 7% last year.

Economists said real wages probably had contracted in the three months to February since wage increases across sectors were likely to have been settled before the peak in inflation in November.

The headline consumer price index (CPI) peaked at an annual 12,9% in November, while CPIX (consumer inflation less mortgages) peaked at 11,3% during October and November last year.

Econometrix economist Tony Twine said the fall in real wages reported by Stats SA was "probably a temporary phenomenon".

He said the Bank was more concerned with wage settlements going forward, since wage adjustments tended to be based on past inflation, rather than on forwardlooking factors.

According to the figures released yesterday by Stats SA, nominal wages surged 10% year on year in February, from R5723 to R6294.

However, across-the board figures disguise substantial inequalities in average wages across sectors, with the highest average real wage of R13105 paid in the electricity, gas and water supply sector, followed by the financial sector with an average real wage of R9477 in February. Construction workers earn the lowest average monthly wage, at R3210, followed by the trade sector, which pays an average wage of R3610.

Real public sector wages also declined in February, falling 4,4% to R6219.

Jun 11 2003 07:35:41:000AM Nasreen Seria Business Day 1st Edition