What is Inflation?
Inflation represents the gradual decrease in purchasing power over time. In India, it is primarily measured by the Consumer Price Index (CPI), which tracks the price changes of a representative basket of everyday goods and services—including food, fuel, housing, healthcare, and education.
How Inflation Affects Your Money
- Loss of Value: If the annual inflation rate is 6%, a product costing ₹100 today will cost ₹106 next year.
- Real Returns: If your bank savings account pays 3.5% interest while inflation is 6%, your real purchasing power is actually shrinking by -2.5% per year.
- Investment Strategy: To grow real wealth, investment returns (after tax) must consistently exceed the prevailing inflation rate.