Most of us hear, read, listen or discuss about inflation & how much it is affecting our monthly budget or expenses. We generally discuss inflation in terms of increase in prices of key grocery items, vegetables, hotel bills, medical expenses, school fees etc. So, we know inflation is all about increasing prices of goods and services. But do you know, inflation also reduces our purchasing power?
Definition of inflation is “A general increase in prices and fall in the purchasing value of money.” This means every year purchasing power of money is reduced. For example, today if we are buying a Burger or dosa or vegetables for Rs.100, we need to spend Rs. 107 to buy the same. In other words, value of Rs 100 will become Rs. 93. This is called as reduction in purchasing power.
Now the question is, can you maintain or increase your purchasing power and keep yourselves ahead of inflation? Good news is, YES you can. If your earning is increasing more than inflation (Historical inflation in India is around 6% to 7%) then you are sustaining purchasing power. Another way is investing your surplus which can give returns more than inflation.
Now let’s discuss about inflation[MM1] . Most of the people keep their money lying in saving bank account and feel happy about it. Some of them invest in bank fix deposits because they want to protect their hard earned money. Typically, bank saving account gives 3% return & Fixed deposits give 5% to 7% return depending on tenure and amount. Now consider inflation of 6% to 7%. So, when we decide to keep money in these instruments, you can imagine your investment is actually decreasing. Inflation is slowly eating your money.
Many times we discuss that 20-30 years back, we completed our education in few thousand Rupees and now it is costing in lacs. We used to get Vada Pav for Rs 1 only, now it costs around Rs. 15. Many of us are ignorant about inflation & not able to visualize future scenario.
I would like to give few examples:
| Goals | Inflation | Cost in 2023 | Cost in 2028 | Cost in 2030 |
| Education | 10% | ₹ 100,000 | ₹ 161,051.00 | ₹ 194,872 |
| Vacation | 8% | ₹ 100,000 | ₹ 146,933 | ₹ 171,382 |
So, the learning is, we need to keep on earning or investing our hard-earned money which gives returns more than inflation.
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[MM1]Inflation or investment ?
Excellent Artical