Understand how inflation impacts your money over time
Inflation is the rate at which the general price level of goods and services rises, causing purchasing power to fall. If inflation is 6%, something costing ₹100 today will cost ₹106 next year.
Future Cost = Current Cost × (1 + inflation rate)^years
India's average inflation: ~5%–7% (CPI). Education and healthcare inflate at 8%–12% annually.
Historically, equity markets have returned 12%–15% CAGR, outpacing inflation significantly over 10+ year periods.
These are traditional inflation hedges that tend to appreciate with or above inflation rates.
Money sitting in a savings account at 3%–4% loses purchasing power if inflation is 6%. Always invest surplus funds.
Use 6%–7% for general expenses, 10% for education, and 8%–10% for healthcare to be safe.
Moderate inflation (2%–4%) is considered healthy for an economy. It encourages spending and investment. Deflation (falling prices) can be worse as it discourages economic activity.
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