Inflation Calculator

What is Inflation?

Magine buying a loaf of bread for ₹10 today. Due to inflation, that same loaf might cost ₹12 a year from now. This decrease in purchasing power is what inflation represents. Inflation rates are usually expressed as a percentage and are measured by tracking the average price changes of a basket of essential goods and services.

Example Calculation of Inflation

Let's say you have ₹25,000 today and want to know its purchasing power in 10 years, assuming a constant inflation rate of 4% per year. Using an inflation calculator, you'll get a result like

Impact of Inflation on Investments

Inflation erodes the real value of your investments over time. If your investments return a rate lower than inflation, your purchasing power diminishes. Let's say you invest ₹10,000 with a 5% return, but inflation is 6%. Even though your investment grows nominally, you can actually buy less with the earned amount due to inflation.

Considering Inflation When Investing

To combat inflation's effects, you need to target investments with returns that outpace inflation. Here are some strategies:

• Diversification: Invest in a variety of asset classes like stocks, bonds, and real estate. These asset classes have historically shown to grow at rates exceeding inflation over the long term.
• Focus on Growth Assets: Growth-oriented investments like stocks have the potential for higher returns, potentially outperforming inflation. However, they also carry higher risks.
• Review and Rebalance: Regularly review your portfolio and adjust asset allocation to maintain your desired risk profile and inflation-beating potential.

Conclusion

Inflation is an inevitable part of the economic landscape. By understanding its impact and employing strategic investment approaches, you can work towards preserving and growing your purchasing power over time. Remember, seeking professional financial advice can help you create an investment plan that considers inflation and aligns with your financial goals.