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6 types of inflation that affect our daily finances contd...2
Retail Inflation
Retail inflation affects every product and service available in the retail market.
From an increase in service charges to increasing prices of lifestyle goods and services, inflation impacts every individual as his basket of goods to be purchased day in and day out are bound to cut across a vast swathe of products and services that have seen persistent inflation.
Retail inflation is measured by the Consumer Price Index which is calculated by taking a weighted average on a specific basket of goods and services.
Currently the CPI witnessed an increase to reach 120.70 index points as on April 2015 up from 120.20 index points in March2015.
Like food inflation, retail inflation corrodes your purchasing power by dipping into your disposable income.
If its effect on your monthly budget is not monitored periodically, it can prove to be a nasty surprise when you least expect it.
Lifestyle Inflation
Ten years ago, a simple Sunday exercise to watch a movie with your family of four would have set you back by Rs 200.
Today, with rising inflation, the cost of one ticket for a weekend show is Rs. 200.
Throw in lunch and your bill for the weekend is easily tenfold what it was a decade ago. That is the effect of inflation -- specifically lifestyle inflation.
Beit an imported paperback, the latest gadget or your favourite pizza -- no category of lifestyle products have been spared the withering influence of lifestyle inflation, causing your monthly entertainment and comfort spends to balloon.
As our income increases, our lifestyle too changes -- a bigger house, branded clothes, a more expensive car among other things become de rigueur.
These additional expenses too are bucketed under lifestyle inflation.
Education Inflation
When everything from school stationery to tuition fees to transportation charges mount, the overall cost of educating your child swells.
During phases of increased inflation, the RBI is forced to up the repo rates, which in turn increases bank base rates for retail loans, including education loans.
As a consequence, you would be shelling out more in terms of interest outgo on the education loan you would take to give your child quality education.
Suppose a degree today costs Rs 500,000 per annum in tuition fees.
Considering that education inflation is around 7-8% per annum, the same course would cost almost Rs 20 lakh (Rs 2 million) in 20 years.
So, if you are saving for your child’s higher education, ensure that you account for inflation.
Inflation and financial planning for your family
Considering all these, your expenses increase not just on account of the rise inprices, but also due to an aspiration for a better lifestyle.
Although we calculate inflation at a rounded up 5-6 per cent per year, in fact, inflation for different segments vary.
Also, since the rise in prices are different for different families and is dependent on their finances, a common number that is applicable to all may not work always.
For this very same reason, the financial plans made by your colleague or friend for his family may not work for you.
A good practice is to identify how inflation affects your family specifically and factor only that into your financial planning.
rediff news..
Retail inflation affects every product and service available in the retail market.
From an increase in service charges to increasing prices of lifestyle goods and services, inflation impacts every individual as his basket of goods to be purchased day in and day out are bound to cut across a vast swathe of products and services that have seen persistent inflation.
Retail inflation is measured by the Consumer Price Index which is calculated by taking a weighted average on a specific basket of goods and services.
Currently the CPI witnessed an increase to reach 120.70 index points as on April 2015 up from 120.20 index points in March2015.
Like food inflation, retail inflation corrodes your purchasing power by dipping into your disposable income.
If its effect on your monthly budget is not monitored periodically, it can prove to be a nasty surprise when you least expect it.
Lifestyle Inflation
Ten years ago, a simple Sunday exercise to watch a movie with your family of four would have set you back by Rs 200.
Today, with rising inflation, the cost of one ticket for a weekend show is Rs. 200.
Throw in lunch and your bill for the weekend is easily tenfold what it was a decade ago. That is the effect of inflation -- specifically lifestyle inflation.
Beit an imported paperback, the latest gadget or your favourite pizza -- no category of lifestyle products have been spared the withering influence of lifestyle inflation, causing your monthly entertainment and comfort spends to balloon.
As our income increases, our lifestyle too changes -- a bigger house, branded clothes, a more expensive car among other things become de rigueur.
These additional expenses too are bucketed under lifestyle inflation.
Education Inflation
When everything from school stationery to tuition fees to transportation charges mount, the overall cost of educating your child swells.
During phases of increased inflation, the RBI is forced to up the repo rates, which in turn increases bank base rates for retail loans, including education loans.
As a consequence, you would be shelling out more in terms of interest outgo on the education loan you would take to give your child quality education.
Suppose a degree today costs Rs 500,000 per annum in tuition fees.
Considering that education inflation is around 7-8% per annum, the same course would cost almost Rs 20 lakh (Rs 2 million) in 20 years.
So, if you are saving for your child’s higher education, ensure that you account for inflation.
Inflation and financial planning for your family
Considering all these, your expenses increase not just on account of the rise inprices, but also due to an aspiration for a better lifestyle.
Although we calculate inflation at a rounded up 5-6 per cent per year, in fact, inflation for different segments vary.
Also, since the rise in prices are different for different families and is dependent on their finances, a common number that is applicable to all may not work always.
For this very same reason, the financial plans made by your colleague or friend for his family may not work for you.
A good practice is to identify how inflation affects your family specifically and factor only that into your financial planning.
rediff news..