Inflation
A sustained rise in the general price level, which reduces what each rupee can buy.
Formula
Inflation Rate = (Current Price Index - Prior Year Price Index) / Prior Year Price Index x 100
Unit
%
In depth
Inflation is a rate of change, so falling inflation still means rising prices — a distinction constantly blurred in commentary, where a lower inflation number is reported as prices coming down when they are merely rising more slowly. It is the reason nominal returns overstate real gains, and at 6% it halves purchasing power in about twelve years. India's monetary policy targets consumer price inflation at 4% with a band of plus or minus two points, so the number directly drives interest rate decisions and therefore asset prices. Moderate inflation generally helps equities, since revenues rise with prices, while it damages long-dated fixed-rate bonds.
Worked example
At 6% inflation, the rule of 72 gives 72 / 6 = 12 years for prices to double and purchasing power to halve. A ₹1,00,000 expense today becomes ₹2,00,000 in twelve years with no change in what is bought.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Inflation” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.