In economics, Inflation is increase in price of goods and services with decreasing the power of money. In simple terms, inflation occurs when one has to pay extra or additional money to purchase the goods or services which was earlier available at less price. Let us take a real life example, the price of movie ticket, snacks, or doctor’s fee was less few years back compared to what you pay today. So to avail the same goods and services you have to give extra money and so you are left with less amount to save. This way inflation affects your savings.

Inflation occurs either

  • when demands for a goods or services increase and the supply of the same is not enough to meet the demands or,
  • when there is increased money supply in the money market and people have more money to spend

In both the above ways, savings is affected by inflation. Inflation is therefore sometimes seen as a monster that eats up you savings. If you steadily save a specific amount for a specific goal like retirement or children’s education, yet your plan might not be enough as the time when you reach the goal the inflation will effect the corpus. Thus, it is essential to include inflation rate while planning for any financial goal