Inflation- Meaning
Inflation
It is the most important financial term in our lives. It is referred to as a rise in the prices of goods and services of daily use (other than these, our life cannot go smoothly). It is measured in percentage change in avg. price of these everyday use commodities. In simple words, if suppose inflation rate is 7p.a. and your monthly expense is around 10000, then after one year, it will be around 10700. This number seems to look so small in the short run, but in the long run, it is very much as it is getting compounding every year. If you don’t invest your money and let it be dormant in a savings account with a 2% interest rate, you are losing around 5% every year. And in F.Ds with 5.5% interest rates, you are losing approximately 1.5% every year. And the Inflation rate I have taken is avg. inflation rate, while during hyperinflation, these rates go as high as 10-15%, so now you can calculate how much money you are losing every year. In India, the Ministry of Statistics and Programme Implementation measures inflation.
Acc. to some organizations, there will be conditions of hyperinflation in the coming years due to this COVID govt. are printing a lot of cash to help in these difficult times, but as more and more cash is printed, inflation increase as demand and supply relations are shattered, i.e., if people have more cash, they buy more things which result in demand of such products increase and supply remain constant or decrease, so rates of such products tend to increase.
So by not investing your money by the fear of losing the money, you are just losing your money to inflation.
Some asset classes that outperform in times of inflation are
- Real Estate
- Gold
- Some stocks/ mutual funds
- And now-a-days crypto is also in these
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| Real Estate |
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| Gold |
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| Stock market |
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| Cryptocurrency |
Opposite of cash is debt, so in times of hyperinflation, if you have debt on you and you have a source of income to cover your debt, then it is good as the value of your debt is decreasing due to inflation.
If you take debt for the house at 6.7p.a. and then put that house on lease, it will generate rental income, which can help you cover your EMIs, and due to inflation, your loan money is losing its value, and your rental income increases as inflation increases.
Here is the link for opening a Demat account:
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