Wikipedia says “inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index, usually the consumer price index, over time.”
All definitions are fine. But what is inflation to us. Let us take an simple milk price example. In 2008, you kept 20 rupees in the small pouch of your shopping bag to buy one liter milk. You did not buy a milk and forgot to take out the 20 rupees in that small pouch. In 2018, you see that shopping bag accidently and see that 20 rupees kept in the small pouch. Now go to market and ask 1 liter milk for that 20 rupees. Do you get one liter milk or half liter milk in 2018 ?
In 2008, One liter milk is 20 rupees, you could buy one liter milk by 20 rupees.
In 2018, One liter milk is 40 rupees, you can buy, only half liter milk by 20 rupees.
Inflation Meaning :
The increase of milk price decrease the value of your money. This is inflation. If you can buy one liter milk for 20 rupees in 2018, the inflation rate is 0%. Now you can buy only half liter milk. so inflation rate is 9% each year for milk.
We have taken the milk and its inflation rate is 9%. Indian inflation rate is calculated based on all the communities in the market including food items, petrol, milk and all the other commodities. Last 10 years, india’s Inflation rate varies between 3% – 12% every year.
India’s inflation rate between 3% – 12%. It is not 0%.
Inflation vs Your income:
How inflation impacts us. It majorly impacts the family financial position. To beat the inflation, we should get at least 7% increase in our salary. Because every year milk, egg, rent, transport and school fee increase by minimum 7% inflation rate. In simple terms, if you get salary increase or income increase by more than 7% is considered as increase. Less than 8% considered as income balanced for inflation rate. Nothing more than that and no reason to celebrate 7% salary hike.
No reason to celebrate 7% salary hike against Inflation rate.
If you do not agree on inflation in your family financial planning, take it as challenge to start save whole salary hike after you get hike. Means that,salary increased from 30000 rupees to 33000 rupees. Start save the 3000 rupees apart from your earlier financial saving. Do you believe you can afford full 3000 rupees to extra saving? It is impossible in inflation.
The hot cash/money in your hand is loss for you against inflation.
It is major financial mistake to have money as hot cash or keep in kitchen boxes to save it. Atleast money should be kept to beat inflation by saving in indian popular FD or in post office saving schemes.
Most important that Money saved by Indian housewives in kitchen boxes are loss for them against inflation.
Saving money in FD or post office would help you to beat the inflation. Full stop. Don’t assume yourself it is investment. It would only help you beat inflation and it is not investment.
How to beat inflation:
To grow your financial situation, you have move one step ahead of inflation. Otherwise it is kind of balancing yourself to inflation by salary hike or saving plans. You can beat the inflation only if you are business man or politicians. Because Businessman increases the profit based on inflation rate. For instance he buys 20 rupees and would sale for 24 rupees, in inflation he would buy 40 rupees and sale it for 48 rupees. He adjust profit and adjust based on inflation. Politician can tolerate the inflation, because recently member of parliament salary increased by 100%. So try to become MP or MLA and do not worry about inflation.
If both are not possible as a working professional, there are ways to manage the money against inflation. We would discuss way to beat inflation in upcoming sections. Think again your family financial planning against inflation. Happy Investing:)