Well, according to government data, news agencies and for average population inflation may be low but for you and me, the story is different.
We are hearing for the past few months that India’s inflation is benign and below the RBI’s target of 4.0%. But we personally feel that inflation we are experiencing is way above 3.99% (retail inflation) declared by Government of India for the month of September.
Consequently, we went through the calculation methodology of inflation and found that Weight/Composition of different items that goes into calculation of inflation does not reflect our lifestyle. Shockingly, according to government, we spend 45.86% of our total expenses on food & beverages. This is not true for people like us. In reality a family whose monthly expenses are INR 50,000 (for instance) doesn’t spend INR 22930 on food & beverages. It is way lower than that. The major reason behind lukewarm inflation is food & beverages. Prices of food & beverages have remained subdued over the past year and gets reflected in inflation figures, due to its lion’s share in the inflation calculation.
The below table highlights the weights given to different categories in inflation calculation.
For a family with children the composition of education proportionate to total expenses will be well above 4.46%. Housing is very subjective, someone having own house without a house loan will experience nil housing inflation compared to family living on rent. For modern day millennial and generation z folks, proportion of recreation and amusement expenses is more than 1.68%.
Hence, every individual experiences a different rate of inflation and should not fix his investment return goals based on inflation of the country. Rather his investment return goals should be based on the inflation he/she is experiencing.
Do share with your friends and let them know this rare information.
Source: Central Statistics Office