Understanding Inflation – Our Core Problem By Asif Punjwani

31 January, 2012
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inflation

One Rupee was all I wanted for lunch at school during my early school days, enough to buy me one bag-a-chips, and three Rupees for Thursdays to enjoy Pepsi. This was about two decades ago. Today a bag of chips cost Rs7 and Pepsi Rs20. So what happened? Am I getting 7 times the amount of Chips or Pepsi? Or is it my money worth less? This one’s pretty easy to answer after enjoying Pepsi. If I had saved those Rs3 from 20 years ago, it would have lost 86% of its value today. So how did this happen? How did the value of my Rs3 erode away as time went by? Where did the purchase powergo? To answer this, we will have to understand Money and the role of Central Banks.

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