If inflation is 5%, something that costs ₹100 today costs about ₹105 a year later. For savers, the real return on an investment is roughly its return minus inflation: an FD earning 7% when inflation is 5% grows your purchasing power by only about 2%.
In India, the RBI targets consumer price inflation (CPI). Very high inflation erodes savings, while very low inflation or falling prices can signal weak demand.
