Inflation is a phenomenon due to which the value of money decreases over time and prices of goods and services increase. When we say inflation has increased, it means that the ability of money to purchase things has decreased. For example, something that you could buy for Rs 100 twenty years ago has become more expensive now. This means that today you cannot buy the same things with the same Rs 100 note. And if you look into the future, the things that you can buy today with Rs 100 will become more expensive 20 years down the line.

Diminishing Value of Money: A perspective on salaries and purchasing power

You’ve probably heard from your grandfather and father that when they were working, their salaries were much lower than what many people earn today. Although they received smaller paychecks, that money held far more value at the time. Essentially, they could purchase a lot more with the same amount of money compared to what we can buy today.

For instance, in 1950, the price of gold was just Rs 99 per 10 grams and today, in 2024, it has skyrocketed to nearly Rs 78,000. If we relate this to income, someone earning Rs 200 per month in 1950 would need to earn over Rs 1.5 lakh per month today to have the same purchasing power. This highlights how inflation has drastically changed the value of money over the years.

Also read: Inflation calculator: What will be the value of Rs 1 crore after 10, 20, 30 years

From this, we can see that what a lakhpati (someone whose net worth is in lakhs) could purchase in the 1980s is often beyond the reach of a crorepati (someone with a net worth of over Rs 1 crore) today. This serves as an important lesson: when planning for the future, it’s crucial to consider the future value of money.

Often, when we invest in fixed deposits (FDs) or other financial schemes, we think about the value of our investment in today’s terms. However, we overlook that the money we receive in 20 years will not have the same purchasing power due to inflation.

The value of Rs 1 crore over time

To illustrate the effects of inflation, let’s consider two scenarios: a person who had Rs 1 crore 20 years ago and another who had Rs 1 crore 30 years ago. We’ll analyze the current value of that money in 2024, assuming an average annual inflation rate of 5%.

Value comparison over time: Rs 1 crore

20 Years Ago (2004):

Original amount: Rs 1 crore

Current value (2024): Approximately Rs 38 lakh

Explanation: The purchasing power of Rs 1 crore has significantly diminished due to inflation over the past 20 years.

30 Years Ago (1994):

Original amount: Rs 1 crore

Current value (2024): Approximately Rs 23,20,000

Explanation: Similarly, the value of Rs 1 crore from 30 years ago has decreased substantially, illustrating the impact of inflation over three decades.

Also read: Inflation Calculator: What will be the value of Rs 1 lakh after 20, 30 and 40 years?

Summary:

Rs 1 crore in 2004: Worth about Rs 38 lakh today.

Rs 1 crore in 1994: Worth about Rs 23,20,000 today.

These calculations highlight how inflation erodes the value of money over time, making it crucial to consider historical values when planning for the future.