In layman’s terms Inflation means, the level of prices is going up and/ or the value of money is going down. In other words with inflation, you keep paying more and more every passing year to buy the same quantity of item!! Do you remember how much you paid to buy a coffee, a movie ticket or a loaf of bread when you were say 15 years old? Now just think how much you are paying to buy those same items today; haven’t those prices increased by at least 8 times?
Inflation not only happens to increase the prices of consumer goods and services but also happens to decrease the value of your savings. For example, you have Rs. 100 in a savings account that pays a 3% interest rate. After a year, you will have Rs. 103 in your savings. Now if inflation rate was 4%, you should have Rs. 104 to make up for the impact. Since you only have Rs. 103, you have actually lost some purchasing power. Inflation won’t literally take money out of your savings, but it will impact your purchasing power, making it difficult to keep up with your standard of living.
Remember that inflation always erodes the purchasing power of money. So, you have to save or invest your money keeping in mind the inflation rates.