Inflation also called as Mehangai or Mudraksfiti in hindi, is a silent thief in an Economic world which eats away at the Purchasing Power of your money over a period of time. In simple words, inflation is a constant increase in the prices of commodities and services available in the market. That does not mean one single commodity or service has increased in price but all basic living commodities (Bread, Cloth, Housing, Fuel, Education) ‘almost’ every other thing has become expensive!
The simplest way to understand inflation is that your money remains the same, but the amount of goods/ service available drops. For example, if today at 100 rupees, you can buy 2 litr of Milk, then if inflation rises, next year with 100 rupees, you would be able to buy only 1.8 litr of Milk. The government uses the CPI (Consumer Price Index) to calculate inflation, which is based on the average person‘s everyday consumption.
Ek aam ghalatfahmhi yeh hota hai ki a bada amount of ₹100 bank ya torri mein ikattha kar diya. Well, the truth is that the money is melting away silently in bank. The main reason being the impact of Purchasing Power Depreciating Effect.
Chaliye ek real example se samajhte hain:
Maan lijiye desh mein inflation rate average 6% per year hai:
Aaj (Year 0): You have 1000 Rs and you are able to buy an item worth 100.
1 Saol Baad: Aap ki total demand, will increase to 106 -- which means your purchasing power of 100 rupees, will now be approximately 94 rupees.
High inflation is not suddenness, which is primarily three large financial factors:
Demand-Pull Inflation: When there is a situation where a product‘s demand exceeds the supply for a product then the seller will increase his price for it.
Cost-Push Inflation: Jab raw material (like crude oil, metals) or workers wages (majdoori) become expensive, then firms increase the price of their final product.
Built-In Inflation: When prices rise workers demand higher wages and when wages rise prices and goods become higher (Wage-Price Spiral).
Aam Insaan Par Effect:
The greatest shock of inflation is experienced by the middle class and salaried people. If your income grows by 5% annually but the inflation level in the country is growing by 7% then technically your purchasing power has decreased by 2% rather than increased. Coupled with this is the inflation in medical treatment and lower & higher education for our children which turns out to be twice the normal inflation rate (10%-12%) which quickly takes away all our savings.
10 Saol Baad: under 6% inflation, the purchasing power of that ever diminishing 100 Rupees will be remain only Rs.55.
Even after 10 years Matlab will be written on your notes as ’ & #8377 100’ but with that money you will buy the same things as you could buy for just Rs.55 today. That‘s why keeping money deposited is socially uneconomical.
The only way you can beat inflation is by investing your money somewhere where the return exceeds the inflation rate significantly. This is called as ‘Beating Inflation’.
Traditional vs Smart Investment Options:
Savings Account (2.5% - 3.5% Return): Yeh inflation (6%) se kafi peeche hai, isme paisa lagatar apni value khota hai.
Bank FD/RD (6% - 7% Return): This only just manages to reach the inflation level after tax deduction actual return is zero or negative.
Equity Mutual Funds / Direct Stocks (12% 15% Return): The most effective way to beat inflation. Over long term, stock market can bring about wealth creation by means of compounding.
Real Estate Aur Gold : Gold and property have long been a solid hedge against inflation, and produced 8%– 10% returns.
Final Advice:
Don‘t lock your money in bank account alone. Invest your money by taking benefits of ‘Power of Compounding’ and equity SIPs so that your money can grow at the rate of inflation and secure your future!
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