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Kotas on Wheels - Palesa deals with inflation
Palesa's kota business is thriving, but her team manager Phuti is not happy. Everything is going up in price and she's struggling to make ends meet. Palesa does some investigating and realises Phuti is right - all of the ingredients for her kotas have gone up in price. A R100 simply doesn't buy the same amount of goods as it did last year. This decrease in the buying power of money is because of inflation. Let's explore the topic of inflation with Palesa and see what she does to keep her business profitable and Phuti happy.
Kotas on Wheels Inflation English
00:00
Welcome to Living Finance - Kotas on Wheels. News of Palesa's business Kotas on Wheels has spread, and since buying her new bakkie, business is booming. In each episode, we unpack a challenge Palesa has with her business and learn how to help her solve it. In this episode, Palesa learns all about inflation and how it affects her business and employees.
00:28
Palesa's manager Phuti is worried. She tells Palesa that the price of food has been going up and her current salary isn't enough to cover her family's needs. Palesa does some investigating. Phuti is right - it's not just food, her business costs have also increased. All these increases are due to inflation, and Palesa needs to make a plan to combat the effects of inflation for her business, and for her staff.
00:57
Inflation is a measure of the change in the buying power of money over time. In other words, inflation affects how much you can buy with your money. For example, how much can Palesa buy with R100? Well, last year, bread cost R12, so she could buy eight loaves with R4 change leftover. But this year, bread has increased to R15 per loaf, so R100 will buy less. Now she can only buy seven loaves of bread for R105. That's less bread than last year, and no change. Ouch, the buying power of her money has shrunk because the prices have increased. Inflation doesn't just affect food prices. It also affects the petrol price, the price of services like water and electricity, and the general cost of living. With all these increases, you can see why Phuti and her team need a raise to help them get through the month.
02:01
We can use graphs to compare the inflation from month to month in one year. We can also compare inflation from year to year. The increase in prices is measured over a range of goods to find an average price increase and an average rate of inflation. The average inflation rate fluctuates. It increases in some years and decreases in other years. It can even change from one month to the next within the same year. In 2022, the average inflation was 5,73%. But 2023 is predicted to have a 4,65% average inflation rate. Although the rate of increase in 2023 is lower than in 2022, the prices will not go down. They will continue to go up, but just not quite as fast as in 2022. Why is that? Prices only go down if the inflation rate is below 0%. We call this deflation or negative inflation.
03:04
With all of this in mind, Palesa and Phuti look at the expenses and the sale price for the kotas. Palesa thinks, I want to pay Phuti and my other staff more, so I'll need to increase the price of kotas. We've been selling them for R20 for two years, so I think we can increase the price to R25. I'm sure our customers will understand even though it's a 25% hike.
03:31
After raising the price of a kota to R25 Palesa works out that she can afford to give her staff an increase of 15% on their salaries. That's good news for Phuti. It means a salary increases from R20 000 to R23 000. Whoohoo! Phuti is really pleased and so is Palesa who now understands inflation.
04:01
What has Palesa learnt? Firstly, that inflation is the average rate of increase in prices over time. And secondly, to account for rising food prices and the increased salary needs of her employees, Palesa must adjust the cost of her kotas. Find more episodes of Kotas on Wheels wherever you get your podcasts or on our website: O M Learn Think Do dot com. Kotas on Wheels is brought to you by Old Mutual Learn Think Do.