While investing in any investment scheme, investors account for a variety of factors like their risk-taking capacity, investment horizon, investment amount, and the returns that they can earn. While some of these are factors that an investor can control, Consumer Price Index (CPI) inflation is one that they cannot. However, inflation still remains a very crucial factor that investors account for before making any investment. India’s CPI inflation in November 2023 stood at 5.55 per cent. An inflation calculator can help investors account for CPI inflation by helping them calculate inflation before making any investment decision.
What is CPI inflation, and how is it generally calculated?
To understand inflation, an investor must first understand the concept of “purchasing power”. The purchasing power of a currency is its value expressed in terms of the number of goods and services that one unit of that currency can purchase. Inflation weakens a currency’s purchasing power, thereby reducing the number of goods and services that a consumer can purchase using one unit of that particular currency. “Inflation” is the change in purchasing power of a currency over time. This rate of change can be calculated month-on-month or year-on-year and is a measure of understanding how often and how much the purchasing power of the consumer’s income changes over time. Around the world, experts have deployed two methods to measure inflation – Consumer Price Index and Wholesale Price Index. CPI or the Consumer Price Index – which consists of a combination of two-hundred and ninety-nine commodities – is used as a measure to calculate inflation in India since 2013. Here is how consumers can calculate this value:
Inflation rate = (Initial CPI – Final CPI/Initial CPI) * 100
Where CPI stands for Consumer Price Index.
How do inflation calculators help?
The most efficient way for an investor to account for CPI inflation before making an investment is to use an inflation rate calculator. Here are the features and benefits of inflation calculators:
- Inflation rate calculators can be found online and be used for free: Investors need not pay any fee to a third-party website to access an inflation rate calculator. Most inflation calculators can be found online and for free. Investors can enter the details of their investment and know their expected returns – by accounting for inflation – in a matter of seconds.
- These calculators offer time-sensitive and precise results: Inflation calculators help investors make time-sensitive investment decisions by accounting for CPI inflation. Investors can bank on these free, online tools to provide them with accurate results.
- Investors can use an inflation calculator to leverage a growing demand in the market: High inflation is also indicative of increasing demand, which can lead to increased economic growth in an economy. Investors can identify trends that indicate an increase in demand and plan their mutual fund investments accordingly with the help of an inflation calculator.
Investors can use an inflation rate calculator to precisely calculate the future value of their investments in the future by accounting for Consumer Price Inflation. Since inflation calculator requires investors to input other values such as their investment amount and investment horizon, it would help investors to have decided on these details before accounting for inflation using the calculator.
