What is Inflation and How Does it Silently Eat Your Savings?
Have you ever looked at your parents’ old photos and heard them say, “In our day, a movie ticket was only ₹20!” or “We could buy a month’s worth of groceries for ₹1,000”?
It sounds almost unbelievable, doesn’t it?
You might have brushed it off as just a nostalgic comment. But have you paused to think about your own money? That ₹100 note in your wallet today buys less than it did five years ago. A cup of chai at your favourite corner stall that used to cost ₹10 is now ₹15. That’s a 50% jump!
This slow, almost invisible reduction in your money’s power has a name. It’s called inflation, and it’s the silent thief that’s eating away at your hard-earned savings.
So, What Exactly is Inflation?
In the simplest terms, inflation is the increase in the prices of goods and services over time. As prices go up, the purchasing power of your money goes down. Each rupee buys a smaller percentage of a good or service.
Think of your savings as a bucket of water. Inflation is a tiny, slow, almost unnoticeable leak at the bottom. Day-to-day, you might not see the water level drop. But over a year, or five years, you’ll suddenly realize you have much less water than you thought.
The Real-Life Example: The Savings Account Trap
Let’s see how this plays out in real life.
Imagine you have ₹1,00,000 saved up. You’ve diligently kept it in a standard savings bank account, thinking it’s safe and sound. Your bank gives you an interest rate of, let’s say, 3.5% per year.
At the end of one year, your money has grown to ₹1,03,500. Not bad, right? You made ₹3,500!
But hold on. During that same year, the average inflation rate in India was around 6%.
What does this mean? It means that the things you could have bought for ₹1,00,000 at the start of the year now cost ₹1,06,000.
Let’s do the math:
- Your money grew to: ₹1,03,500
- The cost of goods grew to: ₹1,06,000
Even though the amount of money in your account increased, your ability to buy things with it has actually decreased. You are effectively poorer by ₹2,500 in terms of purchasing power. This is called a negative real rate of return.
Real Rate of Return = Interest Rate – Inflation Rate
3.5% – 6% = -2.5%
Your money isn’t just leaking; you’re actively losing value every single day you leave it sitting idle.
How to Fight Back Against This Silent Thief
If saving money in a bank account isn’t enough, what should you do? The answer is simple: You need to invest.
You need to put your money to work in places where it can grow at a rate that is higher than the rate of inflation. The goal isn’t just to save money; it’s to grow its value over time.
This is where options you may have read about, like Systematic Investment Plans (SIPs) in Mutual Funds, Public Provident Fund (PPF), or even direct stocks come into play. These investment avenues are designed to generate returns that can outpace inflation over the long term, helping you build real wealth.
For example, historically, equity mutual funds in India have delivered long-term average returns well above the rate of inflation.
Your Takeaway
Inflation isn’t just a complicated economic term you see in the news. It’s a real force impacting your daily life and your future goals. Acknowledging its existence is the first step toward building a robust financial future.
Don’t let your hard-earned money lose its power in silence. Start thinking about how you can make it work harder for you.