What will ₹1 lakh buy in 2046? Inflation in pictures

Put ₹1,00,000 in a locker today and take it out in 2046. The number will not have changed by a single rupee. What it buys will have changed a great deal: at 6 percent a year, it will buy roughly what ₹31,000 buys today.

Inflation is hard to feel because it never announces itself. No bill arrives saying “you lost ₹69,000”. The loss shows up as slightly higher prices at the tea stall, the school and the petrol pump, year after year, until one day the old numbers look unreal. This article puts numbers and pictures on that slow leak.

How a rupee shrinks

If prices rise by a steady rate every year, the buying power of a fixed amount of money falls by the same compounding. After n years the money is worth 1 ÷ (1 + inflation)ⁿ of what it was. This is the same maths as compound interest, running the wrong way.

The same shrinking, as prices

Looking at it from the shop’s side is just as sobering. Something that costs ₹100 today costs this much in twenty years:

The number that matters: your real return

A deposit that pays 7 percent sounds comfortable. But if prices rise 6 percent, you are only about 1 percent ahead in what you can actually buy. That left-over is called the real return, and it is the only return that counts.

Now add tax. If the interest is taxed at a 30 percent slab rate, a 7 percent deposit leaves 4.9 percent. Against 6 percent inflation, 1.049 ÷ 1.06 − 1 is about −1 percent. In buying power you went backwards while the balance looked like it grew. Your own tax rate decides this, so check yours.

Which rate should you use?

Nobody knows the future rate of inflation. In recent years the headline figure in India has varied from year to year, and your own spending is not the same as the national basket. A sensible habit is to run two or three rates, such as 4, 6 and 8 percent, and plan so that the plan survives the middle one.

• Education and healthcare have often risen faster than general prices. If you are saving for these, use a higher rate than the headline number.
• Rent, food and fuel follow general inflation more closely.
• Electronics often get cheaper for the same quality, so inflation on them can be negative.

What to do with the number

1. Write goals in future money. If you need ₹50 lakh in today’s buying power in 20 years, at 6 percent you need about ₹1.6 crore on the day. Use the calculator to get the exact figure.
2. Keep cash for short-term needs only. Money you will spend within a year or two does not lose much. Money you will need in fifteen years does.
3. Aim for returns above inflation after tax. If a place for your money cannot beat the real-rate test over your time horizon, it is a parking space, not a plan.
4. Revisit once a year. If actual prices rose faster than your assumed rate, adjust the goal rather than hoping.