5 ways to fight the impact of inflation

A relentless price increase can disrupt your purchasing power and monthly budget and affect your everyday life. If you haven't guessed already, this is the impact of inflation that poses a financial roadblock to managing your savings and investments. But how is inflation measured? 

Measuring inflation depends on the consumer price index (CPI). The monthly CPI rate in India was 4.70% in April, 5.66% in March, 6.44% in February, and 6.52% in January 2023. In April 2022, CPI rose to the highest rate of 7.79%. These figures raise the alarm while managing monthly finances.

Before we learn more about the impact of inflation, let us take a closer look at what is inflation, inflation rate, and ways to lower its effects. 

What is inflation?

Inflation is an increase in product and service prices over time that affects people's purchasing power.

For example, in a month, you purchase essential grocery items by spending Rs 2,000. Next month, the price of certain food items goes up due to the impact of inflation, and your cost increases to Rs 2,200. It means you are spending Rs 200 extra for the same items due to a higher inflation rate. Paying this inflated price may affect your monthly budget.

What is inflation rate? 

It is the rate at which the product and service prices increase. Due to an increasing inflation rate, your purchasing power or the value of money reduces over time.

We can calculate the annual inflation rate using the formula below -

Inflation Rate = [(B – A) ÷ A] x 100

B = Current CPI

A = Past CPI

How does inflation affect common people?
 

• The impact of inflation makes people experience higher prices on food items, cooking gas, petrol or diesel, rent and many other essential products and services
• According to a news report, a spike in CPI has been more prominent in the rural areas of India as they give more importance to food items.

Measures you can take 
 

You can consider taking the following measures to manage your finance and fight the impact of inflation -

• Follow a strict budget and find commodities with lower prices

To avoid the impact of inflation, you can follow a strict budget focusing on spending money only on essential products or services. You can buy cheaper alternatives of essential products from bulk stores.

• Reduce your debt 

Avoid borrowing money from new credit lines at a high-interest rate when inflation persists. In case you have multiple debts, you can reduce them with the help of debt consolidation.

• Keep an emergency fund

Keeping an emergency fund can help you meet your urgent financial need. You can create and grow your emergency fund by keeping a specific amount in a recurring deposit account or having a fixed deposit. 

• Monthly savings 

Your monthly savings can help you deal with the impact of inflation and bail you out during difficult financial situations. An effective way to have monthly savings is using a savings bank account. Your savings account balance is liquid, and you can withdraw it anytime. 

• Use the right savings account with monthly interest credits to grow your money

You can earn monthly interest credits against your account balance by keeping money in a savings account. You can open a savings account after considering a few key factors.

For example, you can open an IDFC FIRST Bank Savings Account and get interest rates up to7% p.a.

Also read - Benefits of having more than one Savings Account

The way forward

When the economy experiences a slowdown, implementing measures such as strict budgeting, practising affordable shopping habits, reducing debt, maintaining an emergency fund, saving every month, etc. can mitigate the impact of inflation.

Opening an IDFC FIRST Bank Savings Account can help protect your savings and meet your long-term financial goals. With a higher interest rate and monthly interest credits, you can make more out of your money, thus increasing your monthly savings. Click here to know more.  

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.