Understanding Inflation

Inflation is the rate at which prices rise and purchasing power falls. At a modest 6% average inflation, something that costs ₹100 today costs roughly ₹180 in 10 years and ₹320 in 20 years. This is why 'safe' money sitting in a savings account earning 3-4% is actually losing real value every single year — you're growing in rupee terms while shrinking in what those rupees can buy.

This is the entire argument for taking on some investment risk for long-term goals. Fixed deposits at 6-7% barely keep pace with inflation before tax; after tax, they often lose to it. Equity has historically outpaced inflation by a meaningful margin over long periods precisely because it carries real short-term risk that FDs don't — the extra return is compensation for that risk, not a free lunch.

Inflation isn't uniform either. Healthcare and education costs in India have historically risen faster than general inflation, often 8-10% a year. If your goals involve either — a child's college fund, a retirement corpus that must cover medical costs — using the general inflation rate to plan will systematically undershoot what you actually need.

The practical habit: whenever you set a savings target for something more than 5 years away, inflate the target first, then work out the required monthly investment. Planning with today's prices for a goal a decade away is one of the most common and costly mistakes in personal financial planning.