Understanding Inflation: How it Erodes Your Purchasing Power
By Surya Prakash
Financial Analyst & Editor
What is Inflation?
Inflation is the gradual rate at which the general prices of goods and services rise over time, leading to a decline in the purchasing power of your money. If the annual inflation rate is 6%, an item costing ₹100 today will cost ₹106 next year. This means your savings must grow at a rate higher than inflation just to maintain their real value.
The silent Destroyer of Cash
Storing cash in a savings account or a locker is a guaranteed way to lose wealth. At 6% inflation, ₹1 Lakh saved today will only have the purchasing power of ₹55,839 in 10 years, and a mere ₹31,180 in 20 years. Inflation acts as a silent tax on cash.
Beating Inflation with Equity and Real Estate
To preserve your purchasing power, you must invest in assets that historically beat inflation over the long term. Equities (mutual funds/stocks) and real estate have consistently delivered inflation-beating returns, making them essential for long-term goals.