What is Inflation and how to impact it?

Have you ever noticed, how  Golgappe and pani puri which cost Rs Rs 1 when you were a kid, now cost is Rs 20 to 30 as per different city? That's inflation in action! Let's break down this important economic concept in simple terms.

Understanding Inflation

Inflation is when prices go up over time, making our money worth less than before. Think of it as a Bike Honda Shine - what you could buy with Rs 60-65 thousand a few years ago might only get you Rs 1 Lakh worth of Bike today.

Common Causes of Inflation

1. Too much money in the economy (like when governments print more money)
2. Higher production costs (when making things becomes more expensive)
3. Strong consumer demand (when everyone wants to buy the same things)
4. Supply chain problems (when it's hard to get materials or products)

Types of Inflation

1. Demand-Pull Inflation

This happens when we all want to buy more than stores can stock. Remember when everyone wanted to buy sanitizer and masks during the pandemic? Prices went up because demand was higher than supply.

2. Cost-Push Inflation

When companies spend more to make products, they usually pass these costs to us. For example, if diesel and petrol prices increase, transportation costs rise, making everything more expensive.

How Inflation Affects Daily Life

1. Shopping and Bills

1. Groceries cost more each year.
2. Rent payments typically increase.
3. Utility bills tend to rise.
4. Entertainment has become more expensive.    

2. Savings and Income

Your Rs 1 lakh in savings might buy less next year than it does today. That's why many people invest their money instead of keeping it all in a savings account.

Remember: A 5% inflation rate (as per the Current inflation rate) means that Rs 100 today will only buy you Rs 95 worth of goods next year.

Managing Inflation as an Individual

1. Smart Money Moves

1.1 Create a budget and adjust it regularly

1.2 Look for better deals when shopping

1.3 Consider investing in inflation-protected securities

1.4 Negotiate for yearly salary increases that beat inflation

2. Practical Tips

2.1 Buy in bulk when prices are good

2.2 Use price comparison apps

2.3 Learn basic repair skills to avoid replacement costs

2.4 Start a side income to help offset rising costs

The Bigger Picture

Inflation isn't always bad - a small amount (around 3%) is actually normal and healthy for the economy. It's when inflation gets too high that we need to worry.

When to Be Concerned

1. If prices rise faster than wages
2. When inflation exceeds 5-6% annually
3. If the cost of basic necessities becomes unaffordable

Fun fact: Zimbabwe once had inflation so high that prices doubled every day. They eventually printed a 100 trillion dollar bill!

Taking Action

1. Keep track of your spending
2. Build an emergency fund
3. Learn about investing
4. Stay informed about economic news
5. Talk to financial advisors when needed

Remember, understanding inflation helps you make better financial decisions. While we can't control inflation, we can control how we respond to it.