Inflation Calculator

Most of us want to earn more as the years go by because things keep getting costlier. But do you know why the value of money keeps reducing? The reason is inflation. Thankfully, you can plan for it with our inflation calculator designed for India.

What is inflation?

Inflation is an indicator of price rise in an economy. Rising inflation usually translates into a decline in the purchasing power of money over time. So when inflation is on the rise, you will need more money to buy the same amount of goods.

The rate of inflation is expressed as a percentage. It indicates a unit of currency effectively buys less than it did in the past. So if the inflation per month is 4%, you will now need ₹104 to buy the same goods and services that you bought for ₹100 in the previous month.

What is an inflation calculator?

The Reserve Bank of India (RBI) publishes the inflation rate every month. Therefore, there is no need for a calculator that can estimate the inflation rate for you. Instead, this inflation calculator helps you calculate the impact of inflation on your savings and expenses.

The Lemonn inflation calculator will help you estimate the real returns of investment online by taking on board the external economic factor of inflation. It thus comes in handy while designing your portfolio as you can use the returns you require to beat inflation. It is a useful tool for retirement planning too.

How to use the inflation calculator

You can use the inflation calculator by providing the details below:

• The current cost.
• The inflation rate for a particular year.
• The time period for which you wish to check the effect of inflation.

So, for example, if you invest ₹1,00,000 in 2021 and the prevailing inflation rate in 2022 and 2023 is 5.5%, the inflation-adjusted value of your principal amount after these years will be ₹1,11,303. That means, to beat inflation, the redemption value of any investment you make must be higher than this inflation-adjusted principal.

Benefits of inflation calculator in India

The inflation calculator is an easy-to-use tool. And it comes with many benefits. The following are some of the main ones.

• Accurate results

The inflation calculator saves you the effort of doing the math. In this, it also minimizes the chance of human error. All you have to do is key in the correct details and you will have the accurate inflation-adjusted figure in no time.

• Free to use

The calculator is free to use. And you can use it to make as many calculations as you wish. This makes it super accessible.

• Time-saving

Calculating inflation-adjusted returns using a spreadsheet is a complicated task that takes time. The inflation calculator above will make it less time- and energy-consuming.

• Easy to use

The inflation calculator is super easy to use. All you need is basic information like the initial cost or initial investment, the inflation rate for the given years, and the number of years for which you wish to calculate the inflation-adjusted value. Simply key in these variables when the calculator prompt you to, and you can get the answer you’re looking for.

How is inflation calculated?

The calculation of inflation isn’t easy. Inflation is calculated by using the Consumer Price Index (CPI). The CPI is based on 260 commodities, including certain services, and it measures the change in prices at the retail level. The Ministry of Statistics and Programme Implementation collects the prices of sample goods and services monthly, and changes, if any, are noted.

The formula for CPI calculation

You can calculate the CPI value using the formula below:

CPI = (Cost of Fixed Basket of Goods and Services in Current Year/ Cost of Fixed Basket of Goods and Services in Base Year) *100

The impact of inflation can be estimated after calculating the CPI for a two-year period. 

The formula for inflation

Once you have the CPI number, you can calculate the inflation rate using the formula below: 

Inflation = ((CPI x+1 – CPIx)/ CPIx))*100

However, remember you will never have to do any of this calculation; the RBI takes care of it and announces the inflation rate every month. The calculator above will let you to enter the ongoing inflation rate and use it do the math. You can find the inflation rate in India on the RBI’s official website.

Conclusion

Inflation will reduce the purchasing power of your money over time. So it is important to adjust your investment with inflation and estimate the actual returns you are likely to receive. Our inflation calculator will help you do this, allowing you to plan your expenses and investments better.