How inflation is denting savings
Higher inflation and lower interest rates mean there’s no longer any fixed-income investment where you won’t lose money in real terms. Dhirendra Kumar writes.india Updated: Feb 24, 2013 21:24 IST
Higher inflation and lower interest rates mean there’s no longer any fixed-income investment where you won’t lose money in real terms.
Three days from now, the Centre will come out with the 2013-14 budget. It’s a big budget, big in the sense of what it needs to do and what’s expected of it.
From larger questions like the fiscal deficit, to matters like tax-saving investments, there are huge expectations from this budget.
Unfortunately, in one aspect crucial to almost all savers today, the battle is already lost. The returns on fixed-income investments are now well below the real inflation rate. What’s worse, they are going to stay that way.
Oh I know the RBI has lowered interest rates because wholesale inflation is creeping downwards but really, for people at the receiving end of inflation, the WPI is little more than a cruel joke.
The government’s own consumer price index is close to 11% and climbing. What’s worse, the real inflation faced by people is far worse.
Recently, a friend’s driver had asked for a raise eight months after the last one. The conversation went into how the driver spent his monthly salary of Rs.12,000.
Even with considerable frugality, his expense were higher by 20% over the last year! Every working class family is in the same boat so don’t be surprised if you see more and more of the kind of strike you did last week.
Of course, this man has no scope for saving, but even if he did, it would be stupid. He might be better off buying a year’s supply of wheat, dal and rice rather than putting money in some savings account.
That’s the hard truth about inflation and savings. For those not interested in equities, there’s no way to save in which inflation won’t rapidly eat away the real value of your money.