What is inflation?
Inflation is the rise in prices over time. When prices rise, each rupee buys less. A plate of food, a school fee or a hospital bill that costs a certain amount today will cost noticeably more in 10 or 20 years. Planning for goals without accounting for inflation is one of the most common money mistakes.
Inflation formula
where i is the yearly inflation rate and n the number of years.
What 6% inflation does to your money
| Cost today | After | Future cost |
|---|---|---|
| ₹1,00,000 | 10 years | ₹1,79,085 |
| ₹1,00,000 | 20 years | ₹3,20,714 |
| ₹50,000 (monthly expenses) | 25 years | ₹2,14,594 |
| ₹10,00,000 (a child's education) | 30 years | ₹57,43,491 |
Prices roughly double every 12 years at 6% inflation. Someone who needs ₹50,000 a month today will need about ₹2.15 lakh a month in 25 years to live the same way. That is why retirement plans must be built on future costs.
Using this for goal planning
- Enter today's cost of the goal, such as a college fee, a car or your monthly expenses.
- Choose a realistic inflation rate: 5–6% for general expenses, 8–10% for education or healthcare.
- Use the future cost as your target, then work out the monthly investment needed with the SIP calculator or step-up SIP calculator.
Real return: what you actually earn
Your real return is roughly your return minus inflation. An FD paying 7% when inflation is 6% gives a real return of only about 1%, and less after tax. Compare options with the FD calculator and the CAGR calculator, and keep inflation in mind.
Frequently asked questions
How is future cost calculated with inflation?
Future cost = Today’s cost × (1 + inflation rate)^years. At 6% inflation, something that costs ₹1,00,000 today will cost about ₹1,79,085 in 10 years.
What inflation rate should I use for India?
India’s retail (CPI) inflation has averaged roughly 5–6% a year over the long run, and the Reserve Bank of India targets 4% within a band of 2–6%. Education and healthcare costs have usually risen faster, often 8–10% a year.
What is purchasing power?
Purchasing power is what your money can actually buy. If prices rise 6% a year, ₹1,00,000 kept as cash will buy only what about ₹55,839 buys today after 10 years.
How do I beat inflation?
Aim for investments whose returns after tax stay above inflation over your time horizon. Savings accounts and many FDs barely keep pace after tax, while diversified equity has historically beaten inflation over long periods, with more short-term ups and downs.
Sources
Last updated 19 September 2026. Results are estimates for planning only and are not investment, tax or legal advice. See our disclaimer.