Inflation explained: why prices keep rising
By the FreeAllTool team · Updated October 28, 2026
A plate of food or a bus ticket that cost a certain amount ten years ago almost certainly costs more today. This general rise in prices over time is called inflation. It affects every household budget, salary and savings plan.
What inflation means
Inflation is the rate at which the average level of prices rises over a period, usually a year. If inflation is 5%, something that cost ₹100 last year costs about ₹105 this year on average. Put another way, the same money buys a little less.
How it is measured in India
Retail inflation is measured using the Consumer Price Index (CPI), which tracks the prices of a basket of goods and services that households commonly buy, such as food, fuel, clothing, housing and healthcare. The data is published by the National Statistics Office. The Reserve Bank of India uses CPI inflation as the main target for its monetary policy.
Why prices rise
- Demand grows faster than supply, for example when incomes rise and people buy more.
- Costs increase, such as fuel, raw materials or wages, and businesses pass them on.
- Supply shocks, such as poor harvests, can push up food prices sharply.
Inflation and your savings
If your savings earn 4% interest but inflation is 6%, the buying power of your money falls by about 2% a year, even though the number in your account grows. The return after inflation is called the real return. Comparing interest rates with inflation helps you judge whether savings are really growing.
Estimating the effect over time
Inflation compounds like interest. Divide 72 by the inflation rate to estimate how many years it takes for prices to double. At 6% inflation, prices roughly double in 72 ÷ 6 = 12 years. Something costing ₹1,000 today would cost around ₹2,000 then.
Salary hikes and inflation
A 7% raise during a year with 6% inflation increases your real income by only about 1%. Use our percentage calculator to work out your hike, then compare it with the latest inflation figure.
This article explains general concepts and is not financial advice.