Financial glossary
Inflation
Inflation is the rate at which the general price level rises over time, reducing what a fixed amount of money can buy.
What inflation means
Inflation describes prices rising over time, so the same amount of money buys less in the future than it does today. Deflation is the opposite: prices fall, and a fixed amount of money buys more over time.
Projecting a future cost
A current amount can be projected forward at an assumed constant annual rate to estimate what an equivalent purchase might cost after a chosen number of years.
Present value and purchasing power
A future amount can also be discounted back by the same assumed rate to show what it is worth in today's purchasing power, which is useful for judging whether a long-term savings target is realistic.
Simple example
₹1,00,000 of today's cost, projected forward at an assumed 6% annual rate for 10 years, is roughly ₹1,79,085 in future terms.