Inflation
Definition
The general increase in prices of goods and services over time, eroding the purchasing power of money. In India, inflation is measured by the Consumer Price Index (CPI) and targeted by RBI at 4% with a tolerance band of 2-6%. Historical average CPI inflation in India has been approximately 6% over the last two decades.
Why It Matters
Inflation is the silent destroyer of wealth. Rs 1 lakh today will have the purchasing power of only Rs 56,000 in 10 years at 6% inflation. This is why investments that barely beat inflation (like savings accounts at 3-4%) actually make you poorer in real terms. Every financial plan must account for inflation — retirement calculations, insurance sum insured adequacy, and education fund planning all require inflation adjustment.