What is Inflation?
Inflation is an economic concept. If you define it from the economics point of view, then it sounds complicated and tedious. Hence, let us understand inflation in simple manner. When the prices of all commodities or services go up over a period of time, it is known as inflation. And the rate at which this price rise takes place is known as rate of inflation.
Here, we are going to discuss the inflation and its effects on our lifestyle. We will consider a simple example for illustrating this concept. You must have heard from your parents or grandparents that how cheap the commodities were during their time. Similarly, their salary was also less as compared to what we earn today. Actually, the salary and prices has increased, but it is the worth of the money that has increased considerably over a period of years. This is what is known as inflation.
25 paisa – a valuable possession and antique thing
In your grandfather’s time, the price of a loaf of bread was almost 30 to 50 paisa. And now, you can get that same quantity of bread for 25 rupees. Thirty years back, your father must be earning 700 rupees per month and that was sufficient to meet monthly requirements of a family. On the contrary, today, you are earning almost 50,000 rupees per month and you still are worried about your home loan EMIs. In fact, you even think of applying for another credit card. The concept of credit card was miraculous at the time of your father. Thus, as the prices of commodities and services increase, the salary also increases.
Let us now understand how does inflation has an effect on your investment and relevant returns. We will take another example of your Dad. For example, if your grandfather saved 25 paisa in his childhood so that he can have lunch in a posh restaurant after many years. Now, in 2015, your grandfather goes to a posh hotel with the same 25 paisa and asks for full lunch. Well, now you can’t even see coins of 25 and 50 paisa. They have become a part of coin-collection for kids. The crux of this example is that money should be invested so that its value increases.
How to cope up with Inflation?
Thus, in order to cope up with inflation and its effects, you must invest your money over a period of time. You can have a look at the various investment options available in the market. This will surely help you in your post-retirement as well as for your future generations. Secondly, you must always think about the rate of return from the investment. The rate of return on your investment must be always higher than the rate of inflation. This will help you to earn profits in the long run.
Conclusively, inflation and its effects are witnessed by all generations. The impact of inflation can be seen predominantly in these days. You must learn ways to cope up with the inflation and its implications. However, understand what inflation is, how it can be tackled and how your money can be invested in proper manner.
In layman’s language, inflation simply means an increase in price levels. The above mentioned illustration helps us acknowledge the fact that rs.500 twenty years ago is not same as rs.500 today and this is the effect of inflation. It is also necessary to understand that certain amount of inflation is considered normal by the economists. Also, it is believed by many economists that inflation and unemployment are inversely related.
A good article to understand about inflation. Inflation basically increases the prices of all the commodities, share prices, gold, real-estate, etc. and decreases the purchasing power of the consumers. there are many reasons which lead to an inflation, some of them are, increase in FDI, natural calamities, increase in taxes, import duties,etc. A well diversified portfolio of shares can help an investor to cope with inflation.
Good work! This article is simple and is very easy for even a layman to understand. It also has a description of it’s effects.The hierarchical example of grandfather,father and the present generation makes it all.When the price level rises, each unit of currency buys fewer goods and services. Negative effects of inflation include an increase in the opportunity cost of holding money, uncertainty over future. Positive effects include reducing the real burden of public and private debt, keeping nominal interest rates above zero so that central banks can adjust interest rates to stabilize the economy.
In my country we are familiar with the concept of inflation because we live it every day. It shouldn’t increase as fast as it does here and the truth is that inflation is eating our money. Yes it has some positive things but when it raise extremely fast it become in an issue.