Inflation refers to the rate at which the prices of goods and services increase over time. It signifies a decline in purchasing power due to the rise in prices.

What is Inflation?

Inflation occurs when the price levels of goods and services that people rely on daily increase. It typically represents a reduction in the purchasing power of a currency, like the rupee.

There are two main ways to measure inflation:

• Consumer Price Index (CPI)
• Wholesale Price Index (WPI)

WPI tracks changes in prices at the wholesale level, while CPI monitors price changes at the retail level.

How Does Inflation Impact Savings?

Investors typically save and invest with the goal of growing their money over time to meet future financial needs.

Despite careful planning, inflation can significantly reduce savings by raising the cost of goods and services, eroding purchasing power.

Many investors store their savings in bank accounts to earn interest, but sometimes the interest earned isn't enough to counteract the effects of inflation. Moreover, the impact of inflation can vary depending on the type of investment and the rate of inflation.

How to Protect Against Inflation?

Inflation is an unavoidable part of the economy. Although the government tries to control it through policies, some effects are beyond its reach. As a result, individuals should prepare in advance to deal with inflation.

By making thoughtful investments and creating a financial plan designed to outperform inflation, it is possible to manage its effects. For example, investing in stocks and mutual funds often provides returns higher than the inflation rate. However, these investments carry risks that could lead to losses.

Diversifying your investment portfolio and selecting assets that offer strong long-term returns can help mitigate the impact of inflation.

What is an Inflation Calculator?

An inflation calculator is a tool that helps estimate the effect of inflation on an individual's purchasing power. It calculates how the value of money changes over time, and it can also estimate the value of money if invested.

How is Inflation Measured?

Inflation is typically calculated using the Consumer Price Index (CPI), which tracks the change in prices for a fixed set of goods and services.

Once the CPI for two periods is calculated, the inflation rate can be determined using the formula.

Inflation Formula

Inflation is determined using the Consumer Price Index (CPI).

Note: CPIx represents the initial value of the Consumer Price Index.

Advantages of Using an Inflation Calculator

Here are the primary benefits of using an inflation calculator:

• Free to Use

The inflation calculator from IPOtank is free to use and allows for multiple calculations.

• Accurate Results

The calculator provides precise results by considering historical data to assess the future value of money, including the potential returns from investments.

• Simple to Use

Using the inflation calculator is easy. All an individual needs to do is input the amount of money to determine its purchasing power in the future.

• Time-efficient

The inflation calculator quickly delivers results, saving time compared to performing manual calculations.