What is Inflation?
Inflation is the rate at which the general price level rises over time. In India, it is measured by the CPI (Consumer Price Index), which tracks the cost of a typical basket of goods and services.
At 6% annual inflation, something that costs ₹100 today will cost about ₹179 in 10 years. Your money loses purchasing power every year it sits idle.
The Inflation Formula
Future cost = Current cost × (1 + inflation rate)^years. If your monthly expenses are ₹30,000 today and inflation averages 6%, the same lifestyle will cost about ₹53,700 per month in 10 years.
This is why financial planners always talk about real returns — your nominal return minus inflation. A fixed deposit earning 7% when inflation is 6% gives a real return of just 1%.
Inflation and Your Goals
Retirement and education goals must be calculated in future rupees, not today's rupees. A retirement corpus of ₹2 crore sounds large, but at 6% inflation its purchasing power in 25 years is only about ₹47 lakh in today's money.
Equity investments have historically been the best inflation-beating asset class over long periods, while cash and low-yield deposits lose ground to inflation.
Plan in Real Terms
When planning any long-term goal, always inflate the goal amount first, then calculate the investment needed. Skipping this step is the most common reason people outlive their savings.
Use our Inflation calculator to see the future cost of anything, and pair it with a Retirement calculator to build an inflation-adjusted plan.