Inflation
Also called: price rise
The general rise in prices over time, which reduces how much a given amount of money can buy.
When inflation is 6% a year, something that cost ₹100 last year costs about ₹106 now. Money that earns less than inflation loses buying power, even if the number of rupees grows.
This is why returns are best judged after inflation, and why keeping all long-term savings in cash carries its own risk.
Example
A deposit earning 5% while prices rise 6% leaves you able to buy about 1% less than a year earlier, despite earning interest.
Learn more in these lessons
- The risks of investing in sharesWhat are the risks of investing in the stock market?
- Saving, investing and inflationWhat is the difference between saving and investing?
- Nominal and real returnsWhat is a real return after inflation?
- Investment goals and time horizonsHow do you set investment goals and match them to the right investments?
- Interest ratesWhy do interest rates matter so much for companies and share prices?
- RBI monetary policyHow does the RBI try to control inflation, and how does it affect markets?
- GDP and economic growthWhat does GDP measure, and does fast growth mean good stock returns?
- Crude oil and commodity pricesWhy do oil prices matter so much for India and its stock market?
Related terms
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