How inflation erodes purchasing power
Inflation is the reason a number that sounds large today can look inadequate in twenty years. This calculator shows both sides of that: what something costing a fixed amount today will cost later, and what a future sum is worth in today’s money.
Formula
Future cost = Present cost × (1 + inflation)^years
- Present value of a future sum = Future sum ÷ (1 + inflation)^years
- Real return ≈ ((1 + nominal return) ÷ (1 + inflation)) − 1
- Inflation is compounded annually, exactly like interest
What 6% inflation does over twenty years
A household spending ₹50,000 a month today would need about ₹1,60,357 a month for the same lifestyle in twenty years at 6% inflation. Nothing improved — the money simply buys less.
The same arithmetic in reverse is more uncomfortable. A ₹1 crore retirement corpus twenty years from now has the purchasing power of roughly ₹31.2 lakh today, which is why crore-sized targets are less generous than they sound.
Real return is what actually matters
An investment returning 12% while inflation runs at 6% is not growing your wealth by 6%. The precise real return is (1.12 ÷ 1.06) − 1, or about 5.66% — close to the simple subtraction, but the formula matters more at higher rates.
A fixed deposit at 6.5% against 6% inflation delivers a real return under 0.5% before tax, and negative after tax for most savers. Safety has a price, and inflation is how you measure it.
Not every expense inflates at the headline rate
Consumer price inflation is an average. Education and healthcare costs in India have typically risen faster than the overall index, while electronics and some services have risen slower or fallen.
For goal planning, use a rate that fits the specific expense: something higher than headline inflation for school and college fees or medical costs, and closer to headline for general household spending.
Building inflation into your plan
The practical fix is to state goals in future rupees, not today’s. Work out the future cost with this tool, then use a SIP or goal calculator to find the monthly investment needed to reach that inflated figure.
Reviewing the assumption every few years matters too. Inflation is not constant, and a plan built on a 4% assumption looks very different if the next decade runs at 7%.
Example: 6% inflation over 20 years
- Monthly expenses today
- ₹50,000
- Inflation assumed
- 6% p.a.
- Equivalent in 20 years
- ≈ ₹1,60,357
- ₹1 crore in 20 years is worth
- ≈ ₹31.2 lakh today
- Nominal return
- 12% p.a.
- Real return
- ≈ 5.66% p.a.
Prices roughly triple over twenty years at 6%. Any goal more than a decade away should be planned in inflated rupees, or it will be underfunded by design.