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Inflation:The explanation to how your FDs are not returning your money!

                  Inflation:The Secret Robber
The prices of our daily necessities are rising by leaps and bounds. Some people call it price hike. People in general are hard hit by this price is hike or in financial terms called as inflation. This price hike has become a serious problem for the society.

Rise of fall of prices depends on supply and demand cycle. If supply is more,price falls. Now supply falls short owing to increasing population and demand must be more for the same reason.So,price rise is a must according to the law of supply and demand.

Economists say that is a must in a developing country going to heavy expenditure on developmental works through time-bound plans like five year plans in India. It gives rise to inflation which is the main cause of price rise in a developing country.Being a developing country India is facing such price rises.

However,problem arises when wages don't keep pace with the hikes in prices of commodities.Moreover,even when the supply and demand cycle is fixed,producers refuse to slash their prices.Thus,the cycle continues.People from the lower and middle classes suffer a lot.

The government is also at fault.In the recent times,sometimes it has ordered reckless printing of currency bills without having sufficient amount of gold bonds at their disposal in the RBI's vaults.If you have seen Money Heist,a popular web series on Netflix,then you can easily get that excessive printing of money can also indirectly result in inflation.
Here,comes the concept of real rate of returns.Let us suppose we have ₹100000 as a Fixed Deposit in any bank.These FDs usually offer 5% return on the amount invested.However,at the same time,rate of inflation is 6% on average.This means your money is actually severely underperforming.
The only way to get growth out of your investments is putting your money at such a place where it must outperform the rate of inflation.

The pandemic has hit us hard.Things of daily use such as essentials,automobiles, technology products as well as transport industry has shot up.Prices of Petrol have already reached the mark of ₹100 while the price of 1 barrel of crude oil is ₹36.76.All these also show how some private corporates have been increasing their product's prices in the name of inflation.The government has also extracted taxes on various items in the name of inflation.

This article is co-authored by Master Piyush R. Prusti.He has been an active writer on our blog continuously providing us with good content in written format.You can reach out to him at:
piyushprusti@gmail.com

This is the 5th blog in the Finance series.

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