Budgeting for inflation | Value Research Higher inflation and lower interest rates mean that there is no longer any any fixed-income investment where you won't lose money in real terms...
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Budgeting for inflation

Higher inflation and lower interest rates mean that there is no longer any any fixed-income investment where you won't lose money in real terms...

Three days from now, the government will come out with its Budget for 2013-14. It's a big budget, big in the sense of what it needs to do and what is expected of it. From the big picture questions like the fiscal deficit down to matters like tax-saving investments, there are huge expectations from this budget.

Unfortunately, in one aspect that is crucial to almost all savers in the country 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 that the RBI has lowered interest rates because the wholesale inflation is creeping downwards but really, for people who are 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 per cent and climbing. What's worse, the real inflation faced by people is far worse. Recently, a friend of mine's driver had asked for a raise eight months after his previous one. The conversation went into some detail about how the driver spent his Rs 12,000 monthly salary. It turned out that even with considerable frugality, his expense were higher by about 20 per cent 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 to do so. Why, he would probably be better off buying a year's supply of wheat, dal and rice rather than putting the money in some savings account or deposit. That's the hard truth about inflation and savings today. For someone who is not interested in equities, there is absolutely no way to save in which inflation won't rapidly eat away into the real value of your money.






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