Tuesday, December 20, 2005


Inflation, a widely used term has always puzzled me.
"Government declares current inflation to be 4.5%",
"Inflation may further trigger prize hike in most items" and many such complex statements have come across us either in newspapers,web-sites or on news channels.

I have been personally interested in knowing about Stock Markets etc. in the past 6 months. As a part of my occassional ramp up to learn more, i happened to go to one of the trading web sites for some online tutorials. Thats where the concept of Inflation was better explained. I was then able to connect in atleast some way to what inflation was.

Example to explain Inflation:

I used to purchase a particular brand of pen at Rs. 10 (about 22 cents) per piece, when i was in the 10th year of my schooling. In about 6 years, on the 16 th year of my education (final year engineering) i was not able to buy the same pen for Rs. 10. I had to pay Rs.12 (About 24 cents) to buy the same pen. This means that in 6 years, the purchasing power of my Rs. 10 decreased. I was able to purchase less for the same amount of money over time. This is what is inflation. Inflation can be defined as the decrease in the purchasing power over a period of time.

How can we evade inflation:
  • Invest money.
  • Ensure that your money earns interest, which hedges (offsets) inflation and earns you money on top of that.
  • Have a diversified investment portfolio - life insurance, stocks, mutual funds, government bonds, NSC, KVP, Fixed Deposits.
  • Investment in Real Estate can also help you to have a good capital appreciation.
  • Invest in the household non performing asset (NPA) - Gold. I know your mom,sister, girlfriend or wife would love u for this! But this is the last option to opt for. Branded gold may not loose value, but gold wont earn you monetary interest.
As i write this, i dont proclaim myself to be an investment ace or a know it all dude. Am traversing the learning curve and just jotting down my observations and interpretations. Diversifying my writing style to ensure am not stereo typed.

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