Inflation is the rise in the prices of goods and services over time. This means that your money buys less than it did before. Inflation is an inevitable part of global economics. It affects everyone and everything, from household budgets to national economic policies. In this blog, you will learn the effects of inflation on us and our nation and help you prepare to face its challenges.

Decreasing Purchasing Power

Remember last year’s monthly grocery bills? Is it the same this year? Are you consuming more this year than you did last year? Probably not. Still, your grocery bill this year is higher. Why did this happen? The reason is that your purchasing power has reduced. For example, last year you bought a bag of rice for Rs. 100. But this year you won’t get the same bag of rice for the same price. The price of most products increases with time.

If you consider that the inflation rate is 5%, then the same bag of rice would cost Rs. 105 this year. If you are someone with a fixed income or have most of your money in savings, then your money loses its value over time. Consumer Price Index (CPI) measures the average price change over time for goods and services. It helps us know how much more we’re paying today for the same things we needed yesterday.

Impact on Different Income Groups

The effect of inflation is higher on people with low incomes. They are highly vulnerable because they have to spend a larger portion of their income on their necessities. Any rise in prices can strain their budget as their income doesn’t increase proportionately. So they find it difficult to protect themselves from inflation.

Read More : Effects of Inflation on Your Finances and the Economy