Your Inflation Vs. RBI Inflation

Just yesterday, RBI informed us that India’s inflation is around 5.59%.

To be honest, that doesn’t sound like a nightmare (that people in Zimbabwe have gone through – read here). But when you compare it with the ever-so-safe bank FD interest rates, then it seems a bit off. Bank FDs these days don’t give much. You get 4-6% only.

But I am not comparing inflation to FD here.

There is something more important here.

Does the inflation figure notified by RBI (5.59%) mean that all your expenses in the last year have risen by just 5.59%?

Not at all.

Mine haven’t. And I can bet your experience would be different too.

A friend and I were talking about it today and he shared some data with me. Have a look at his data:

India Inflation Real

Note – Some expenses have increased or reduced by a high percentage due to forced life/work-style change due to the pandemic.

It’s pretty clear that that the prices of all things won’t rise uniformly. So every expense head has its own % increase (inflation), or let’s say increase or decrease in outgo itself.

But have a look at that number in the bottom right corner.


 This is the inflation for my friend.

And it is nowhere close to what RBI told us, i.e. 5.59%. More so when you are bombarded with news about Petrol at Rs 100 in several cities.

I hope you get what I am trying to highlight here.

RBI takes into account a basket of goods and services to see how prices change at an overall level for the country as a whole. The real inflation that you and I face might be very different from the nation’s inflation!

If you by chance track your expenses meticulously, then you can do this exercise yourself and you will know. I don’t track my expenses now. Earlier I used to but now I don’t. I anyways don’t spend a lot.

So what needs to be understood here is that every person has his/her own unique inflation number. And more often than not, it’s higher than what the authorities might tell you.

Now if you compare this 9.57% inflation with the money kept in FD earning 5% before taxes you know that you are actually losing money every day.

The keyword above is ‘before taxes’. Together, inflation and taxes join (negative) forces to reduce your purchasing power every year.

Suppose you kept Rs 1 lakh in FD at 6% p.a. return last year.

You earn Rs 6000 as interest.

But you also come in the 20% tax bracket. So 20% of your interest income (i.e. Rs 1200 of Rs 6000) is taken away as taxes.


Post-tax Interest = Rs 4800.

Total Amount (at FD maturity) = Rs 1,04,800

But inflation too was increasing the cost of goods and services in the last one year.

So something that cost Rs 1 lakh last year, would now cost Rs 1,09,570 (if we consider my friend’s estimate of ‘real’ inflation – 9.57%)

Now compare the two figures you got:

Rs 1,04,800 < Rs 1,09,057

This atleast theoretically means that now, you cannot buy something that cost you Rs 1 lakh last year. Why? Because the returns earned (after taxes) are not enough to compensate for the increase in prices (inflation).

This is happening to each and everything you buy today. The costs are going up and will continue to do so.

You can either reduce expenses (Which is not feasible beyond a point) or invest in financial instruments that can provide you with inflation-beating returns.

So don’t play the blame game. Do what you can do for your own self. Inflation is a dirty word and it will continue to remain so. What you need to do is to find your own personal inflation number and then invest properly to beat that number.

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