What is Inflation?

Inflation is the rate at which the general level of prices for goods and services rises, causing the purchasing power of money to fall. In simple terms, it means your money buys less than it used to.

Real-Life Example

Remember when a cup of tea cost ₹5? Now it might cost ₹10 or ₹15. That's inflation in action. Your ₹100 doesn't buy as much as it did 10 years ago because prices have increased.

What Causes Inflation?

• Demand-Pull Inflation: When demand for goods exceeds supply, prices go up
• Cost-Push Inflation: When production costs (labor, raw materials) increase, businesses raise prices
• Built-In Inflation: When workers demand higher wages, businesses raise prices to maintain profits

How Inflation Affects You

Negative impacts:

• Your savings lose value over time
• Fixed income becomes worth less
• Cost of living increases

Positive impacts:

• Debt becomes easier to repay (same amount, but money is worth less)
• Asset values often increase
• Encourages spending and investment

Protecting Against Inflation

To protect your wealth from inflation:

• Invest in assets that grow faster than inflation (stocks, real estate)
• Consider inflation-indexed bonds
• Diversify your portfolio
• Avoid keeping too much cash in savings accounts

Understanding inflation is crucial for making smart financial decisions and protecting your purchasing power over time.