We keep getting wrong about Inflation

When we talk about Inflation, the first thing that comes to mind is that the things around us get more expensive. And that is the true definition of Inflation, if something costs Rs 10 today it will cost Rs 12 tomorrow. In simple terms, inflation is a steady and sustained rise in prices. But when we go deep and try to understand Inflation, we will find out that everything is getting more expensive at the same rate, like labour, prices as well as wages too. But it's not a crisis.

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But again when we think of inflation in terms of energy, the cost of energy is getting doubled and thus the price we pay for energy is increasing rapidly thus there will be a point where people will be spending a lot on energy consumption itself. This seems to be a crisis because stuff is becoming expensive and our wages might not increase that much.

People will argue that some of the prices are decreasing too, thanks to technological advancements like the price of a Mobile Phone, Laptop as well as the price of data. Cheaper does not mean that the price is less, it means that whatever you used to pay 10 years back the prices have either decreased or are almost the same.

Now since we have found out that there are actually two use cases for Inflation, one is when the prices are increasing which can be taken care of by the government by increasing the interest rates, but for the energy, we have to find new sources of supply otherwise it will surely be a crisis in the years to come. We have seen the problem in the western world where people are paying our 40% increase in energy prices and the price will go even higher if not checked now.

I think Universal Basic Income is the need of the hour. In India, somehow it's happening but it has to be done on a larger scale. There are very few people who pay taxes, now we have to increase the number of people who pay taxes and thus use that tax to boost the real living standard for everyone.

As an investor, we have to take inflation into consideration whenever we are investing so that our money also rises at the same speed as the prices of the consumer indexes are rising.

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