What is Inflation?
Inflation is the rate at which prices of goods and services increase over time, reducing the purchasing power of money. India's average inflation has been 5–7% over the past decade.
How Inflation Erodes Savings
At 6% inflation, ₹1 lakh today will buy only ₹55,839 worth of goods in 10 years. In 20 years, it drops to ₹31,180. Your money doesn't grow — it shrinks if returns don't beat inflation.
Real vs Nominal Returns
If your FD gives 7% and inflation is 6%, your real return is only ~1%. Real Return ≈ Nominal Return – Inflation. This is why equity (12%+ nominal) is essential for long-term goals.
How to Beat Inflation
- Equity mutual funds: 12–15% CAGR historically
- Real estate: 8–10% appreciation in tier-1 cities
- Gold: 10–12% over long periods
- PPF/EPF: 7–8% (barely beats inflation but safe)
Inflation Impact on Life Goals
Child's education costing ₹20L today will cost ₹64L in 20 years (at 6% inflation). Your retirement corpus needs to be 3–4x what you think. Always plan with inflation-adjusted numbers.