What is Inflation?
Inflation is the rise in the general price level of goods and services over time. When inflation stays positive, the same amount of money buys fewer items than before, which reduces purchasing power. In India, inflation is commonly tracked through the Consumer Price Index, which measures price changes in a standard basket of household expenses such as food, housing, clothing, and fuel.
What is an Inflation Calculator?
An inflation calculator estimates how today’s cost could change after a chosen number of years at an assumed inflation rate. It helps you translate future expenses into numbers, so you can plan budgets and long-term goals. Example. If an item costs Rs. 90,000 today and inflation is 4% for five years, the estimated future cost is higher due to compounding inflation. The figures shown are for illustrative purpose only.
How does Inflation Calculator Work?
An inflation calculator in India helps you determine the future purchasing power of money while keeping inflation in mind. It takes in three inputs – your current expenses, the inflation rate, and the number of years you wish to consider. Based on these figures, the calculator will estimate how much money you would need to meet your expenses at a future date.
You can use the inflation calculator to estimate how much money you would need in the future to purchase goods/services, estimate the cost of living, come up with a suitable retirement corpus, etc.
Inflation Rate in India for the Last 10 Years
Inflation changes over time based on factors such as supply conditions, demand, and policy actions. Looking at financial-year averages gives a cleaner view than month-to-month numbers. The table below shows India’s CPI-based average inflation rate for the last 10 financial years. These figures are published in official releases and are shared here for information only.
(Source:https://www.mospi.gov.in/)
|
Financial Year |
Average inflation based on CPI (%) |
|
2015-16 |
4.91 |
|
2016-17 |
4.52 |
|
2017-18 |
3.59 |
|
2018-19 |
3.41 |
|
2019-20 |
4.77 |
|
2020-21 |
6.16 |
|
2021-22 |
5.51 |
|
2022-23 |
6.65 |
|
2023-24 |
5.4 |
|
2024-25 |
4.6 |
Formula for Calculating Inflation
Inflation Rate = [(CPI in Year 2 − CPI in Year 1) ÷ CPI in Year 1] × 100.
Here, CPI is the Consumer Price Index for the respective year. This formula shows how much prices increased in percentage terms between two time periods.
How to use the Inflation Calculator?
Enter the current cost, choose an inflation rate, and set the number of years. The calculator will estimate the future cost using compounding. Example. Rs. 1 lakh at 5% for 10 years becomes a higher future cost. The figures shown are for illustrative purpose only.
Advantages of Inflation Calculator
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Quick clarity on goals. It converts a future expense into an estimated rupee value, so planning feels concrete.
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Scenario testing. You can adjust the inflation rate and time period to see how sensitive the future cost is.
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Better budgeting. It helps you plan periodic increases in monthly budgets for essentials such as rent, groceries, or healthcare.
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Helps set targets. It supports goal planning by showing why your savings and investment targets need to rise over time.
How Does Inflation Affect Your Savings?
Inflation steadily erodes the real value of your savings. If your money earns a return that is lower than inflation, your purchasing power declines even if the account balance rises. This is why long-term goals often need regular reviews because the future cost of the same lifestyle or medical needs can move up over time.
How to Overcome the Impact of Inflation?
You can manage inflation impact by trying to estimate future costs early, increasing savings as income grows, and reviewing goals regularly. Diversification and a suitable asset allocation can help align your plan with your time horizon and risk comfort. Keep assumptions realistic, avoid overestimating returns, and revisit the plan when expenses or inflation trends change.
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Frequently asked questions
Have questions? We are happy to help.
Just as inflation indicates the rise in prices of goods and services, deflation indicates the fall in their general prices.
RBI uses Consumer Price Index (CPI) and Wholesale Price Index (WPI) to calculate inflation.
Inflation can impact your savings because it reduces the future value of money. Moreover, it may impact your living standards, simply because if the cost of living goes up faster than your income, investments & savings, you will have to reduce your spending. Hence you can use an inflation calculator and plan your finances wisely.
Yes, it is recommended to consider the impact of inflation on your investment’s future value or returns. For e.g., if your investment gave 15% returns but the cost of living increased by 5%, your actual returns aren’t going to be exactly 15%. It is better to calculate the inflation-adjusted returns during financial planning to estimate the real rate of return.
As per the latest CPI press release issued by the Ministry of Statistics and Programme Implementation (MoSPI), India’s headline retail inflation (CPI Combined) is released monthly. This number changes monthly, so check the newest CPI press release for the current figure on the MoSPI website.
Deflation is a sustained fall in the general price level of goods and services. It increases the purchasing power of money but can hurt demand because people delay spending. Prolonged deflation can reduce profits, wages, and economic growth over time.
Inflation can rise due to higher demand than supply, rising input costs like fuel or wages, supply disruptions, currency depreciation that makes imports costlier, and expansive fiscal or monetary policy. Sometimes, expectations also matter because businesses raise prices in anticipation.
Common types include demand-pull inflation, cost-push inflation, and built-in inflation driven by wage-price expectations. By speed, inflation is often described as creeping, moderate, galloping, or hyperinflation. Economists also track headline inflation and core inflation, which excludes volatile items for clarity.
*Source: https://www.worlddata.info/asia/india/inflation-rates.php#:~:text=For%202021%2C%20an%20inflation%20rate,at%20the%20beginning%20of%202022
*Source: https://www.mospi.gov.in/sites/default/files/press_release/CPI_PR_12jun23.pdf
The above calculation is for illustration purpose only and not an indication of the performance of any schemes. Calculations are based on assumed rate of return and actual return may vary. Performance may or may not be sustained in future. Please get in touch with your professional advisor for a detailed suggestion. The calculations are not based on any judgments of the future return of the debt and equity markets / sectors or of any individual security and should not be construed as promise on minimum returns and/or safeguard of capital. While utmost care has been exercised while preparing the calculator, UTI MF does not warrant the completeness or guarantee that the achieved computations are flawless and/or accurate and disclaims all liabilities, losses and damages arising out of the use or in respect of anything done in reliance of the calculator. The examples do not purport to represent the performance of any security or investments. In view of individual nature of tax consequences, each investor is advised to consult his/ her own professional tax/ financial advisor before taking any investment decision. SIP is a feature offered for disciplined investment of a certain amount on a pre-decided date in a specific mutual fund scheme, regularly over a period of time
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