What is Inflation?

Inflation is when the prices of goods and services in an economy increase over time. This means the same amount of money can buy fewer things than it could before.

Think of it like this:

Imagine you had Rs 100 last year, and you could buy 10 chocolates with it. But this year, the price of chocolates increased, so now you can only buy 8 chocolates with the same Rs 100.

That's inflation! Your money doesn't go as far as it used to.

There are mainly 2 measures of inflation:

The WPI calculates the wholesale-level changes in price, and CPI calculates the retail-level changes in price.

How Does Inflation Affect Your Savings?

Inflation can significantly impact your savings. Here's how:

Example:

If you saved Rs 10,000 earning 4% interest, you'll have Rs 10,400 in a year. But if inflation is 6%, your money's value drops to around Rs 9,800 in buying power.

Impact on Savings:

  1. Erosion of Value: Higher inflation than interest rate reduces real value.
  2. Reduced Buying Power: Same money buys less.
  3. Increased Cost of Living: Harder to maintain standard of living.

What can you do?

  1. Invest wisely: Consider stocks, real estate, or inflation-indexed bonds.
  2. High-Yield Savings: Choose accounts that beat inflation.
  3. Review and adjust: Keep your strategy up to date.

How to Prepare to Overcome Inflation?

  1. Invest in Stocks
  2. Save in High-Yield Accounts
  3. Buy Real Estate
  4. Inflation-Indexed Bonds
  5. Diversify Investments
  6. Increase Income
  7. Reduce Debt
  8. Build Emergency Fund
  9. Invest in Commodities
  10. Review and Adjust

What is an Inflation Calculator?

An inflation calculator helps you calculate the value of money over time, adjusting for inflation.

How is Inflation Calculated?

  1. Basket of Goods and Services
  2. Price Collection
  3. Weighted Average
  4. Index Calculation
  5. Inflation Rate Calculation

Formula:

Inflation Rate = ((Current Year's CPI - Previous Year's CPI) / Previous Year's CPI) × 100

Example:

Current Year's CPI = 110
Previous Year's CPI = 100
Inflation Rate = ((110 - 100) / 100) × 100 = 10%

Benefits of Inflation Calculator