Inflation Rate Calculator (India)
Determine the rate of inflation and purchasing power loss between two time periods based on price changes.
How to Calculate Inflation Rate in India
Understanding inflation is crucial for financial planning in India. Inflation represents the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of the currency is falling. In India, this is typically measured using the Consumer Price Index (CPI) or the Wholesale Price Index (WPI).
This calculator allows you to determine your personal inflation rate based on the change in price of specific goods or services over time, or by inputting general CPI index values.
The Inflation Formula
The basic formula to calculate the inflation rate between two periods is relatively simple:
Inflation Rate (%) = ((Current Price – Initial Price) / Initial Price) × 100
For example, if a liter of petrol cost ₹70 in 2018 and ₹100 in 2023:
- Initial Price: ₹70
- Current Price: ₹100
- Calculation: ((100 – 70) / 70) × 100 = 42.85% Total Inflation.
Calculating Annualized Inflation (CAGR)
While the total percentage tells you how much prices rose overall, the Compound Annual Growth Rate (CAGR) is more useful for comparing against bank Fixed Deposit (FD) rates or Mutual Fund returns. It tells you the average yearly rate at which prices increased.
Annual Inflation = ((Current Price / Initial Price)^(1 / Number of Years) – 1) × 100
Using the petrol example above over a 5-year period:
- Formula: ((100 / 70)^(1/5) – 1) × 100
- Result: Approximately 7.39% per year.
This means petrol prices grew at an average rate of 7.39% annually. If your savings account is giving you only 3% interest, you are effectively losing purchasing power.
CPI vs. WPI in India
When the government releases inflation numbers, they refer to indices:
- CPI (Consumer Price Index): Measures changes in the price level of a weighted average market basket of consumer goods and services purchased by households. This is the primary measure used by the Reserve Bank of India (RBI) for setting repo rates.
- WPI (Wholesale Price Index): Measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses.
Impact on Financial Planning
In India, where the cost of education, healthcare, and housing rises faster than the general CPI, calculating your personal inflation rate is vital. If you are planning for retirement, assume a conservative inflation rate of 6% to 7% to ensure you save enough corpus.
Use the calculator above to check how much prices have actually risen for the items that matter most to your budget, rather than relying solely on headline government statistics.