Definition of Inflation
Inflation is the rate at which the general price level of goods and services rises over time, reducing the purchasing power of money. In India, inflation is measured by the Consumer Price Index (CPI), which tracks price changes in a basket of goods and services consumed by households.
India's RBI targets CPI inflation at 4% (with a tolerance band of ±2%). Historically, India's long-term average CPI inflation has been around 5–6.5% per annum. Healthcare inflation in private hospitals runs even higher at 8–12% per year — a critical factor for retirement planning.
Inflation is why simply saving money (in a savings account at 3–4%) is actually losing money in real terms. Investments must generate returns above inflation to preserve and grow purchasing power. This is why equity investing — with average long-term returns of 11–13% — is essential for long-term financial goals. Always factor inflation into your SIP and FIRE calculations using InvestKit's inflation-adjusted calculators.