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Inflation is crucial to determining purchasing power. In other words, inflation is a measure that causes the prices of goods and services to rise over time, and buyers will feel the pinch as it affects their personal finances, particularly spending and buying habits.
One way of understanding inflation is, for instance, you bought a list of household essentials last month at the expense of INR 1,000, but this month, the price of a specific food item in the same list has risen, leading to an increase in the cost by, let’s say INR 1,100. You may be forced to remove an item from your cart or buy the product at an inflated price by paying extra, which may affect your monthly budget.
Therefore, any factor that causes prices of goods and services to rise in the market and creates instability in consumption leads to inflation. Economists suggest that achieving moderate inflation enough to drive consumption will develop a baseline of economic growth. However, high inflation indicates that an economy is facing severe troubles, whereas low inflation, a.k.a. deflation, is equally problematic.
How to Calculate Inflation Rate In India?
Two indices measure inflation in India: the consumer price index (CPI) and the wholesale price index (WPI). These two measure inflation monthly, considering different approaches to calculating the change in prices of goods and services. The study helps the government and the RBI understand the market’s price change and thus keep a tab on inflation.
The CPI, the Consumer Price Index, analyzes the retail inflation of goods and services in the economy across 260 commodities. The CPI-based retail inflation considers the price changes at which the consumers buy goods. The data is collected separately by the Ministry of Statistics and Program Implementation and the Ministry of Labour.
The WPI, which stands for the Wholesale Price Index, analyzes the inflation of only goods across 697 commodities. WPI-based wholesale inflation considers the price change at which consumers buy goods at a wholesale price or in bulk from factories, mantisetc.
Historical Data of Inflation Rate in India
Here’s a list of the country’s inflation as measured in both CPI and WPI indices to help you understand the change in price over time.
Latest Inflation News in India (Updated Aug. 12, 2024)
Aug. 12, 2024: India’s retail prices fall below RBI’s target in July to 3.54%
India’s retail inflation eased to 3.54% in July, from 5.08% in June and 4.75% in May 2024, according to the latest Ministry of Statistics and Programme Implementation data. It is the first time in nearly five years that India’s CPI inflation fell below RBI’s target of 4%.
The retail inflation rate was 3.99% in September 2019 and 3.28% in August that year (see table). CPI in 2024 has hit its highest at 5.10% in January and 5.09% in the following month. WPI in June increased to a 16-month high at 3.36%, from 2.61% in May, 1.26% in April, and 0.53% in March this year.
“This is due to inflation falling and high base effect, as last year’s CPI inflation was above the 7% level. Core inflation is at 3.4% versus the expectation of 3.35%. There were fears of CPI inflation coming higher as RbI has revised the second quarter CPI inflation forecast from 3.8% to 4.4% in its latest monetary policy. This data may continue to show positive momentum in the debt market,” said Murthy Nagarajan, Head (Fixed Income) of Tata Asset Management.
The Reserve Bank of India (RBI) has paused rate hikes and kept the benchmark repo rate unchanged at 6.50% in its latest monetary policy meeting. The RBI governor, Shanktikanta Das, has maintained that the monetary policy committee will remain focused on withdrawing accommodation as merited to ensure inflation does not obstruct growth prospects and will take actions promptly and appropriately as required to keep inflation expectations firmly anchored and bring inflation down to the target.
Many participants believe the RBI is on track to balance the country’s growth and inflation, but if upward pressure on prices persists, the stock market will likely face its impact in the near-to-mid term. Meanwhile, April 2024 inflation in the U.S. suggests that the consumer price index decreased to 3.4% year over year from 3.5% in March.
How To Beat Inflation In 2024?
In the past, the government has announced a series of measures to ease inflation — cut the excise duty on petrol and diesel and reduce import duty on critical raw materials and crude edible oils, to name a few. On the other hand, the RBI tries to control inflation by increasing the repo rate (the rate of interest or cost levied upon public and private banks for borrowing money from the apex bank, to maintain the supply and demand of goods and services. Simultaneously, the increase in repo rates compels banks to increase interest rates on loans and deposit rates.
Hence, it’s essential to be financially disciplined, not just regarding your spending and buying habits but also your savings and investments. Choosing the right investment instrument is the one way to remain economically safe, which not only suits your personal finance needs to give you the risk you are willing to take but also allows your savings to grow enough to beat inflation.
Related: Are We In A Recession Yet?
Bottom Line
Managing your personal finances is one of the ways to beat inflation.
- Categorize your finances to meet long-term, mid-term, and short-term goals.
- Plan your savings and choose your investment instruments.
- Increase savings + investment amount as per the growth in your income.
Following suit consistently will help you achieve your financial goals with an optional extra wealth accumulated over time. It will also combat inflation and meet the depreciating value of the Indian currency against the U.S. dollar.
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