What is inflation and why should you care?

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While watching the news on television or watching any finance YouTuber you must have noticed the concept of inflation. And if you are unaware of inflation or how it affects one life then this article is for you. In this article, we would help you learn about the following topics:

1. What is inflation?
2. Why should you care about inflation?
3. Inflation rate in India?
4. How can you tackle inflation?
5 Conclusion

What is inflation?
As defined by Wikipedia ‘’In economics, inflation is a general increase in the prices of goods and services in an economy”’. But if we speak in simple terms, inflation may be understood as a decline in purchasing power over time for a given currency. The estimate at which the purchasing power is declining is estimated by calculating the increase in the price of goods and services in an economy over a period of time. The goods to be taken into consideration while calculating inflation are fixed, around 290 products in the case of India. The prices of these products are observed every month to calculate the rate of inflation at year-end. The rise in price is expressed in percentage, which means that a rupee will buy you less than it used to buy you in a prior time.

The opposite of inflation is deflation, where the rate of inflation is either 0% or negative. While inflation is usually considered bad, some economists suggest that an inflation of 2 % is good and helps in the economic growth of a country. Also, you may see some people referring to inflation as a decline in the value of money over time.

Why should you care about inflation?
You may be wondering what effect inflation has on a normal person’s day to day life. Inflation has a far greater effect on our life than one may think, we see an increase in the price of products from time to time, especially in recent times you must have noticed a high rise in the price of edible oil, which also is due to inflation. The increase in inflation makes products costlier and increases the cost of living, the product that you buy today for 100 rs and if the rate of inflation is 10% per year then the product is most likely to cost 110rs after 1-2 years. With inflation, your money remains the same but the cost keeps on increasing, thus forcing you to buy less for the same money. Not only this, one needs to understand inflation for understanding investment, imagine you invest your money in a fixed deposit at 6% interest pa. While inflation is 8% then your money is losing value at 2% because your money will eventually buy you less. So if one understands inflation, one can invest to beat inflation by investing smartly.

Inflation rate in India?
Given below is the inflation rate for the last 10 years in India:
How can you tackle inflation?
1. Investing- By making better investments, which provides you with a good return of about 12-15%, which can beat inflation as well as earn you some extra money.
2. Also you would need to increase your income with time to beat inflation. Unless your income increases with time you won’t be able to afford the increased cost of goods. But in case you’re retired and have no source of income then the investment is the only option for you.

Conclusion – In this article we have explained everything related to inflation, hope the article helped you. And inflation is just reducing the value of our money, so it’s necessary for every one of us to understand it.

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