What makes prices keep going up? What is inflation?

Have you ever wondered how a packet of chips that once cost ₹10 now costs ₹15? Or how your favourite streaming service discreetly increases its subscription price every year? This is called inflation, a concept many adults also find confusing, but one that affects everyone, especially students and young adults.

In this blog, I will help break it down and make you understand why inflation happens, how it affects your daily life, and what you can do to be financially smart in an inflationary world.

Definition of inflation

Inflation is the rate at which the general level of prices for goods and services rises over time, and as a result of which, the purchasing power of money decreases. In simple terms, ₹1000 today will buy you less than it did five years ago. This is how inflation works. This however does not mean that every price increases at the same speed. Rather, the average of prices across essential categories like food, transport, clothing, and education generally tends to goes up.

Reasons behind inflation

There are some main reasons why inflation happens:

1. Demand-pull inflation: When demand for goods/services exceeds supply. For example, when everyone suddenly wants the latest iPhone model and Apple cannot produce enough, the prices rise.

2. Cost-push inflation: When the cost to produce goods rises (like fuel or raw materials or wages), companies increase their prices in order to maintain profit.

3. Built-in inflation: When workers expect prices to rise, they start demanding higher wages. But then, businesses in turn begin to increase their prices to pay those wages, thereby creating a loop.

4. Excessive money supply: When governments print too much money without a corresponding economic growth, the value of money tends to falls and prices rise as a consequence.

Why should you bother as a student?

Inflation might sound like a topic meant for discussions between “grown-ups”, but believe me, it impacts us directly as students. Let’s see how.

• Higher cost of education: Tuition fees, books, online courses and test prep services become more expensive.

• Pocket money shrinks: If you are used to managing your week on ₹500, inflation may force you to stretch this harder.

• Savings lose value: If you are saving money in a piggy bank or a basic account that does not earn interest, inflation quietly eats its value.

• Food and lifestyle expenses: Your favorite snacks, bus passes or gaming/OTT subscriptions slowly begin to increase in cost.

How to measure inflation?

Inflation is commonly measured using something called the Consumer Price Index (CPI). This index tracks the price of a basket of goods that average people use, like food, fuel, housing, healthcare and so on. If the CPI goes up by 6% in a year, it means, that on an average, prices have increased by 6%.

For example, India’s inflation rate in recent years has hovered somewhere around 4 to 6%. In contrast, during the post-COVID period, countries like the USA and UK saw inflation rates spike up to as high as 8 to 9%.

So, what can we do about it?

While students cannot go as far as controlling global inflation, you can build healthy and smart financial habits to protect yourself, such as:

- Start saving smartly. Learn to avoid keeping all your money idle. Look into savings accounts that offer higher interest, or explore student-friendly investment options like mutual funds through SIPs (Systematic Investment Plans).

- Budget with inflation in mind. Always anticipate that prices will rise. If your canteen meal now costs ₹60, assume it may hit ₹70 soon. You must learn to plan your spending accordingly and prioritize your needs over wants.

- Diversify your sources of income. Find small ways to earn such as tutoring juniors, part-time digital work or even selling handmade crafts. Earning a little extra goes a long was in offsetting rising costs.

- Stay informed. Follow some basic economic news. Knowing when inflation is high can help you make smarter and informed decisions, like postponing a big purchase or switching from saving to investing.

Why inflation matters for our future

When you enter college or the workforce, inflation will impact your salary as you will need yearly hikes just to match rising costs, your rent, loans, and daily expenses, and your investments, because the returns must beat inflation to be truly profitable.

That is why understanding inflation now is nothing less than a superpower. It is not just about knowing “why chips are expensive” but also about developing a long-term money mindset that prepares you for adulthood. While you cannot stop prices from rising, you can equip yourself with knowledge and habits that keep your finances healthy despite them.