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Inflation-Adjusted Return Calculator

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Inflation Adjusted Return Calculator

What is Inflation?

Inflation is a rise in price levels of goods and services that are required for day-to-day use. It primarily indicates the fall in the purchasing capacity of the rupee.

There are mainly 2 measures of inflation:

  • Consumer Price Index (CPI)
  • Wholesale Price Index (WPI)

The Wholesale Price Index (WPI) calculates the wholesale-level changes in price, and Consumer Price Index (CPI) calculates the retail-level changes in price.

How Does Inflation Affect Your Savings?

Every investor makes their savings and investments with the sole intent of growing their money over time to fulfill their financial goals and necessities in the future. However, inflation can affect savings by diminishing an individual's purchasing power. The returns on investments may vary depending on the inflation rate.

How to Prepare to Overcome Inflation?

Inflation is inevitable, but with careful investments and effective financial planning, one can achieve returns that outpace inflation. Investing in stocks and mutual funds, which historically provide higher returns than the inflation rate, can be a good strategy. Diversifying the portfolio and picking the right investments can help endure inflation without much hardship.

What is an Inflation Calculator?

An inflation calculator calculates the effect of inflation on purchasing power and capacity. It indicates the worth of a quantity of money after a certain period. The inflation adjustment calculator also helps estimate the worth of the same amount of money if it is invested.

How is Inflation Calculated?

Inflation is calculated using the Consumer Price Index (CPI), which measures the change in the price of goods and services by taking a weighted average value of each.

Formula for CPI:

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

Once the CPI for the two years is calculated, the inflation can be calculated using the following formula:

Formula for Inflation:

Inflation = ((CPI_x+1 – CPI_x) / CPI_x) * 100

Note: CPI_x is the Initial Consumer Price of the Index.

Benefits of Inflation Calculator

  • Free to Use at Ease: Our's inflation calculator is free to use and can be used to run calculations multiple times.
  • Precise Output and Results: This inflation calculator helps assess the potential worth of money in the future and provides precise results using historical rates.
  • Simple to Use: The inflation calculator is easy to operate. Enter the money amount to calculate the purchasing power of the same in the forthcoming years.
  • Time-saving: The inflation-adjusted calculator delivers results in a few seconds, saving time and making it more convenient than manual calculations.

Example Calculation

Using the formula:

Inflation Adjusted Value = Investment Amount / (1 + Inflation Rate / 100)^Number of Years

Let's take an example to illustrate:

  • Investment Amount: ₹1,00,000
  • Inflation Rate: 6%
  • Number of Years: 10

Using the formula:

Inflation Adjusted Value = ₹1,00,000 / (1 + 6 / 100)^10

The inflation-adjusted value is approximately ₹55,839. This means that the purchasing power of ₹1,00,000 today would be reduced to ₹55,839 in 10 years if the inflation rate is 6% per annum.

FAQs

What is the formula for calculating inflation?

Inflation=((CPI x+1 – CPIx)/ CPIx))*100. Where CPIx is the Initial Consumer Price of Index

What is the meaning of price inflation?

Price inflation is an increase in consumer goods and services prices.

What is Deflation?

Deflation is the opposite of inflation. In a period of deflation, the price levels of goods and services tend to drop. It is also known as negative inflation.

What are the primary causes of inflation?

Monetary policies, fiscal policies, demand-pull inflation, exchange rates, cost-push inflation, etc., can cause inflation.

What are the types of inflation?

The commonly known types of inflation are:

  • Built-In Inflation: When prices rise due to increasing wages.
  • Demand-Pull Inflation: When demand for goods/services exceeds supply.
  • Cost-Push Inflation: When production costs increase, leading to higher prices for consumers.

**Disclaimer:** This financial calculator is provided for illustrative purposes only. The calculations are based on assumptions and estimates, and actual results may vary. The calculator does not constitute financial advice and should not be solely relied upon for making financial decisions. Users are advised to consult with a financial advisor for personalized advice.

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