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Inflation - 3 Factors

Inflation - Have You Considered These 3 Factors?

Inflation - we all are aware of. If not, then wake up. Change in price of goods, commodities and services that we consume is known as inflation. To measure inflation rate there are two indices - Wholesale Price Index (WPI) and Consumer Price Index (CPI). We as retail consumer should be concerned only about CPI.

Average inflation (CPI) in India in last 10 years stands at around 8%. This clearly means that if our money earns a lesser interest than 8% (post tax) then real return on our investment is negative. That again means that we are not even protecting the purchasing power of money, creating wealth is a distant dream then.

But the real threat is that we might have not yet understood the effect of inflation properly. Why am I saying this? 3 reasons are behind this:

  1. The price increase that we experience when we buy goods from neighborhood kirana stores or when we pay school fees of our children or when we admit our parents in nearby nursing homes - is way higher than what the govt. released CPI says.
     
  2. The set of goods, commodities that we buy today are not going to remain same forever. We all aspire for better brands or better qualities of goods as years go by. This means even if inflation rate is not increasing our expenses are still going to reach new highs at every passing year. A family which used to buy Lux last year is using Dove now. And next year - you guess.
     
  3. While same set of goods will see a change in brand or quality, new set of goods and services will also become part of our life. Few years back data charges or rental for wi-fi service was not in our monthly list of expenses, but now it is. You may buy a car sooner if you have not bought yet. That will again push up your regular monthly expenses. Netflix (on-demand movie viewing) has not yet caught our attention in a big way, but who can say tomorrow paying Netflix fees will also be in our list of our monthly expenses!

So you see there are more to it than what meets our eyes. Are you prepared?







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