Inflation is the rate at which the general level of prices increases over time, reducing the purchasing power of money. At 6% annual inflation, something that costs ₹1 lakh today will cost ₹1.79 lakh in 10 years — an 79% increase.
Future Cost = Current Cost × (1 + Inflation Rate)^Years. Conversely, the present purchasing power of a future amount = Amount / (1 + Inflation Rate)^Years.
India's Consumer Price Index (CPI) inflation has averaged around 5-7% over the past decade. The Reserve Bank of India (RBI) targets 4% inflation with a tolerance band of 2-6% under its Flexible Inflation Targeting (FIT) framework adopted in 2016. However, actual inflation varies significantly — from below 3% in some months to above 7% during supply disruptions. Food inflation, which makes up nearly 40% of the CPI basket, is particularly volatile and affects household budgets directly.
Not all prices rise at the same rate. General CPI inflation (5-7%) measures the average increase, but specific categories differ dramatically. Fuel inflation moves with global crude oil prices and government excise policies. Rent inflation in metro cities has been 4-8% annually, while tier-2 cities see 3-5%. Gold prices have shown 10-12% annual appreciation over the past two decades, partly as an inflation hedge. Understanding which type of inflation affects your expenses most helps you plan more accurately using this calculator.