Inflation Calculator

Inflation is the gradual rise in the general price level of goods and services over time. As prices climb, each unit of currency buys a little less, so your money loses purchasing power even if the number in your account stays the same.

If your savings grow slower than inflation, their real value falls. For example, at 6% inflation, money left in cash loses roughly half its buying power in about 12 years, even though the balance on paper hasn't dropped a single rupee.

India's long-run consumer inflation has averaged around 5-6% per year, while the US has typically averaged closer to 2-3%. Rates vary year to year, so it's wise to test a few different figures in the calculator to see a realistic range.

The key is to earn a return greater than the inflation rate. Keeping too much in idle cash guarantees a loss of real value. Investing in assets like equity mutual funds via a SIP, or locking money in a fixed deposit at a rate above inflation, helps your wealth keep pace with or outgrow rising prices.

They answer two different questions. Future cost tells you how much more you'll need to buy the same thing later, which is vital for goal planning. Purchasing power tells you what your existing money will actually be worth, which shows the real cost of not investing.

Under India's flexible inflation targeting framework, the Reserve Bank of India is mandated to keep consumer price inflation at 4%, with a tolerance band of two percentage points either side, so between 2% and 6%. The Monetary Policy Committee raises or cuts the repo rate to steer inflation back towards that midpoint, which is why inflation data moves loan and deposit rates. The target is reviewed periodically, so check rbi.org.in for the framework currently in force.

The Consumer Price Index tracks what households actually pay at the retail level, including food, fuel, rent, education and healthcare, and it is the measure the RBI targets and the one that matters for your household budget. The Wholesale Price Index tracks prices of goods traded between businesses and excludes services entirely. WPI usually moves first and more sharply, so it can be a leading signal, but CPI is the better guide to your own cost of living.

At 6% average inflation, Rs 1 crore held as cash today would have the buying power of roughly Rs 31 lakh in 20 years, so nearly 70% of its real value quietly disappears. At 5% inflation it retains about Rs 38 lakh of today's purchasing power. This is why a retirement target set decades in advance has to be inflation-adjusted, and why the money needs to be invested at a return above inflation rather than left idle.