Let's Talk About Inflation

Inflation is the rate at which the prices of goods and services increase over time. It results in a loss of purchasing power.

Purchasing power refers to how much the money you currently have can buy, i.e., your ability to purchase goods and services.

Many central banks target an inflation rate of around 2% per year. This means that goods and services are expected to be around 2% more expensive next year, i.e., you would have to spend about 2% more to buy the same goods and services than you did this year.

Now Let's Talk About Why It Matters :

For Consumers

Most people I know, even today—including my parents—only believe in saving and not investing.

The money lying in your almirah that you accumulate every month may not exactly be a smart money move because it's losing value over time. The ₹50,000 you have saved will lose value over time; the same money will be less valuable in the future than it is today.

Example – Parle-G

Imagine it's the year 2000.

You walk into a kirana store with ₹10.

• A small packet of Parle-G costs ₹2.

• You can buy 5 packets.

Now fast forward to 2026.

You still have ₹10.

• A small packet of Parle-G costs ₹5.

• You can buy only 2 packets.

Nothing happened to your ₹10 note. It's still ₹10.

But what changed was its purchasing power.

For Fixed Income Receivers

An individual with a fixed 3 percent yearly increase to their pension would lose purchasing power if inflation were higher than 3 percent; the value of their pension would decline.

For Debtors

For debtors with fixed-rate interest, it's a whole other story—they benefit from inflation.

Imagine:

• Today you owe ₹1,00,000.

• After several years of inflation, ₹1,00,000 has much less purchasing power than it did when you borrowed it.

So, the real burden of the debt has fallen.

Who benefits and who loses?

• Borrowers (debtors): Benefit because the real value of their fixed-rate debt decreases.

• Lenders (creditors): Lose because the money they receive back has less purchasing power than the money they originally lent.

Why Should You Invest with Inflation in Mind?

Imagine your Fixed Deposit earns 6% annually, while inflation averages 2%. On paper, you've made a 6% return. But because the cost of living has also risen by 2%, your real purchasing power has increased by only about 4%. This is why it's important to invest in assets that can outpace inflation rather than just preserve your money.