How does inflation impact your purchasing power?

Inflation refers to the general increase in prices of goods and services over time. When inflation rises, the value of money falls, meaning you can buy fewer things with the same amount of money. This reduces your purchasing power. For example, if inflation is 6%, something that cost ₹100 last year might cost ₹106 this year. If your income does not rise in line with inflation, your real income effectively decreases. Inflation affects savings, investments, and cost of living. It can erode the value of cash and fixed-income investments if returns don’t keep up. While moderate inflation is considered normal in a growing economy, high inflation can hurt consumers and disturb financial planning. This is why central banks like the RBI take measures to keep inflation under control.