Personal Inflation Rate: Understand Your True Cost of Living & Invest Smarter

Welcoming you all to session #2 of Learn2Invest and I'm Vivek Bajaj, in the market for a long time and I understand how to live the investment journey. Friends, I'm teaching you to invest in a new way by taking different concepts. So I hope you are liking my efforts. And if you have joined with me for the first time then I'm making efforts to give you the right education around Investing & Trading.

I have taught you Trading through the Learn2Trade series and now I'm taking you through the investment journey to you & Annapurna Ji. Hello Annapurna. -Good morning sir. -Good morning. How are you? -All good sir. -How was your first video? - it was quite interesting. So I learned about what basically is an asset. For so many days, I used to think my car is an asset but now I know. It's more of consumption.

Plus about the Inflation that we talked about that every individual has a different rate of inflation so quite interesting. -Thank you. So in every video of mine, you will find something or the other interesting because I talk everything from the heart. The Inflation topic that we touched on was quite a unique topic and a lot of people commented on this that we didn't think about this. So I thought to talk about Inflation today.

And this concept Personalized Inflation that what is the inflation for you? and how you have to prepare yourself for your inflation. We will discuss this today. It's going to be a very interesting video so please pay attention to the presentation and I share the presentation with everyone. So if you have to download it you do it. And after that what you have to do is upon you. So Learn2Invest - know where to start and how to start.

In some videos, we are going to touch on very critical pointers of investing. Little bit stock market related but not directly related to stock market investment. It is also about preparing you to become a better investor. So today's topic is the personal inflation rate. We have started the Learn2Invest journey. What is Inflation? Sometimes we feel that there are that we buy regularly and when we buy regularly then we find out that it's prices are rising.

If we had taken something at 100 and today it is 200-225 and we react too that so much price? Taken now only at 100. So that reaction, the price that changes in the market is inflation. Very simple concept. Inflation is measured at different levels. The thing that is Inflation for you at your age because you have a consumption pattern. For someone else that Inflation might not matter. Which is inflation for a consumer might be different for a producer or a manufacturer or country. So in this presentation today we will discuss deeply on inflation.

The concept of inflation. Technically defining it as a sustained rise in the general price levels of goods and services in an economy, over a specified period of time. Typically we see it as annualized only. If there is 4.5% inflation then on the basis of the previous year 4.5% inflation has increased. It is also a reflection of the loss of purchasing power per unit of money which means that the same amount of money will fetch you the lesser value of goods & services.

In our house, elder people tell that the value of money is decreasing. That "Chawanni". Have you seen it? -Yes sir. In the latest, I saw that one rupee coin. They had discontinued Chawanni and started with one rupee coin. I felt bad for it. And a few years later 10 rupee coins will become Chawanni. What does this mean? The value of money is going down and what is the chief contributor of that value degradation? Inflation.

Why is Inflation required in the economy? -What a beautiful question you have asked. Inflation is required. In fact, imagine a situation where there is deflation. Meaning the prices are decreasing. So you will always have the propensity to postpone your consumption. And if I say that after 3 days, the price of the laptop is going to decrease. Then you will but after 3 days. -So if everyone starts postponing their consumption, then how will the economy run? In the economy, consumption becomes an important part of degrowth traveling.

Every economy has a structure. Do you know the formula for GDP? -Yes. The income of the Indian citizens + the outside income that is coming. + industrial income + government expenditure. More or less you are absolutely correct. So consumption becomes an important part because that only makes one survive. If we stop consumption, then the economy will stop moving. So inflation is important to grow the economy and the more the young economy, the more should be the inflation.

Because young is like a 4-year-old kid with new teeth so he has to eat and try new things. So India is the youngest economy. So obviously Inflation is good for us. Inflation is very much controlled in developed countries so that is why opportunities are even controlled. Because if there will be no inflation, no hike in prices so to the propensity to work hard to consume at a higher price will go down.

I would not want to earn more. You need to get incentivized to earn more, work harder. And if there is no inflation, the incentive will be less. How many types of Inflation? DEMAND-PULL INFLATION. COST-PUSH INFLATION. BUILT-IN INFLATION. Let's discuss these three. DEMAND-PULL INFLATION is such explanatory that if the demand generates due to which there is inflation like the ROI's are less in India.

So when ROI's are low the propensity to borrow goes up. This means when liquidity is available then demand will be more. That's why the demand's housing is more. Demand for cars is more because money is available which will push the inflation so it is caused due to an increase in aggregate demand in the economy. Demand increases while the rate of production remains constant, creating a demand-supply gap. The law of demand.

COST-PUSH INFLATION meaning suddenly something happened due to which prices rose. Possible that the raw materials price increased, suppose for crude oil then cost-push inflation came. Prices of base metal increased, copper. Why so? In the whole world the logistics have become expensive, shipping rates increased due to which prices of metal increased. Supply constraint came. Because of covid production is controlled and not many people are working in the mine to produce due to which supply constraint came.

Third, BUILT-IN INFLATION. There is an inherent character of a product in which inflation is embedded that will be there only irrespective of that. For example. When you are doing a business then you have people as raw material and you know you have to increase the salary so that becomes built-in. Currently, there is a boom in the IT sector, there is a massive demand-supply mismatch because the IT talents are significantly trading in the share market.

A lot of people have gone into the stock market for trading. IT resources have been constrained. Plus there is so much demand for technology because of COVID. The demand generated, supply will be less even and the supply-demand gap could not be immediately filled. There will be courses, youngsters will learn and then practically apply which takes time. Due to which built-in inflation aggravated. So manpower cost of tech has gone up significantly because there is a demand-supply mismatch.

So if you mix the three then you will get an understanding that due to which reason inflation is being caused in today's date. If I ask which reason? Demand-pull? Cost-push? Or Built-in? -I would say demand-pull because of the low-interest rates the liquidity is more. So that's why prices are like that. So I think liquidity is driving right now. It's not necessary that there will be one only. It could be a combination of three.

But one thing is giving more weightage to the moment. So definitely demand-pull is leading but there is a cost-push also because the cost of raw materials has gone up. There is built-in inflation also. So, there is a role of all 3. But demand-pull is higher. Measurement of inflation as inflation is even a kind of an index. Whose price are the base and it starts from a particular year. We will discuss that and then it keeps on adding. So, now it will be a particular rate.

if you will take out the difference between that rate of now and of the previous period so inflation percentage comes. the way the index works. How does NIFTY, BANKNIFTY work? For example, Sensex has a base price of 1000. Cannot remember for NIFTY probably 100 base price. So the nifty has gone up this much from its base. Measuring inflation is really important and indispensable. It needs strict monitoring as history is a testimonial to many economies failing due to unchecked high inflation rates.

Remember any country that failed due to a rise in Inflation? -Venezuela. -Yes. Zimbabwe. Argentina. All these faced a huge problem in the economy. So the RBI, people say even what's the role of RBI? RBI's role is not to print money only. Its role is to make the financial and economic stability. So it takes different measures due to which financial and economic stability is maintained. So managing inflation becomes a very important part of our action.

There are three levels at which inflation can be measured and they are primarily the producer level, wholesaler level, and retailer level. The wholesaler level is called WPI. CPI is consumer price and PPI is producer price. Then there is the commodity index, core price index and there is GDP deflator too. There are different types of inflation. - What is their relevance of them? -Let's see.

Measurement of WPI is the wholesale price of goods so this government has only made the index in which there are 700 commodities whose wholesale price is considered to make an index. This Index's base year is 2011-12. So when the industry sees inflation, it sees this. When it's goods is being priced or do decision making related to goods. We won't see it. Consumer Price Index is the index that we have to see. There are many compositions of it. Food, fuel. We will discuss. I have made an excellent excel for you in which we will take out your inflation rate.

Let's see this fast. CPI for Industrial Workers, CPI for Agricultural Labourers, CPI for Rural Labourers, CPI for Urban Non-Manual Employees. So CPI is available for each and every labor at different levels. So as I said inflation is for everyone, so from here only came this concept. We don't see PPI much in India but this is definitely from an input and output perspective, combining both an Index is made.

This is prominently seen in the US. We haven't become mature enough to watch at the producer level. We measure the index at the wholesale level. The Commodity Price Index is self-explanatory. Multiple commodities have been taken and given weightage to make an index. The core Price index is basically when you move the fuel or energy so the rest retail index comes under the core price index which is basically the core of any activity.

And GDP deflator is from the point of view of GDP, considering all these Inflations if there is an impact of GDP in deflation then it is calculated. So we generally focus on CPI in India. If you want to study more you will get details about this on the internet. Plus, there is a very good website called tradingeconomics.com Go over there, search INDIA, a menu will open, and when you g under price then you will see the different categories of inflation.

So if you are interested in understanding more who inflation is being planned out in India, like GDP deflator, by clicking you can understand by graph how India's GDP deflates because of the price. So when we say that Inflation is 5.5-6% that's the CPI we are saying? -Yes. In the media, sometimes they say WPI also and sometimes CPI. But we will talk about CPI more. The personal cost of Inflation. I have built the base of INflation, you asked why are you teaching inflation so much, sir? Now you understood why?

Because firstly I have to explain to you what is the meaning of inflation is. In our thought process, inflation is a causally used word. But there are so many components of iNFLATION which is needed to be understood. So the personal cost of inflation. Let's calculate your personal cost of inflation. I have made an excel sheet - Personal Inflation Rate Calculator. I will share this with you all. Very interesting. You download it and play with it. If I talk about a typical middle-class family then I have taken the annual income as 8lacs.

And I say let's do 10% savings which are equal to 80k. Let's zoom in. I am not talking about the family that spends 10lac by taking a loan of 2lacs as the income is 8lacs. I'm talking about the family that thinks beforehand to save 10% and after that spend the money which is left. Those are more traditional stronger families. The ones that think about savings before expenses. Nowadays family spends and then saves if it's possible. Fortunately, we all believe in a family that still believes in savings.

So, 10% savings mean 80k, expenses of 7lac20k. Now this 7.20lac expenses in this category, what a typical family does. Food & Beverages, Pan, intoxicants, Clothing, Housing, Fuel & Light, Health, Recreation, Personal Care, Education, Transportation & Household Goods & Services Everyone can have different. You can create your own. Possible that you can say that I'm with dad so there is no cost of housing for me, then in something else.

Because you will not save much money than this. You will spend. So you will have some other allocation. Let's not go in that, So let's consider this excel for you. Current inflation is 4.48% which is the CPI. Now yo see the excel magic, more or less this figure will only come. How? I have taken it out in percentage terms. So 25% of food and beverages. 42% on housing, and respectively. The current Inflation rate, I have taken this out from RBI's website. RBI tells us which component has how much inflation.

1.76% inflation on Food & Beverages 4.22% in Pan, Tobacco & Intoxicants, 7.46% in Clothing, 3.5% in housing. 14% in Fuel & lights, What we say is the oil prices rising so its impact comes over here. 7.5% in health, 7% in recreation 2.5% of personal care and effects which includes the shampoo that we use. 3.5% in education Transport & communication because as the oil prices will rise, then it too will become expensive than its 10% DId you know this before? -No sir,

I have taught you Inflation because we don't know only, we have been told that the rate of inflation is 4.5% It is not so. Every component has different inflation which I found on RBI's website after deep research. So more or less I have told you what the inflation is of the components. Now, what is the personal rate of inflation? This is my weightage multiplied by this, Submission of this is 4.5% Both have 4.5% which means CPI has come to 4.5% so you understood the calculation to make the CPI.

You have kept money in the banks in the savings account. It is giving you 2.7% Inflation is 4.5% there in which means your real interest rate is negative So if the money will be kept in the savings account then the value of that money is finished. So 0.25 became 1 and 1 will become 10. You will have that 10 rupee coin whose value will be 0. Why? This is why. Now I'm introducing a new concept for you which is ASPIRATION Inflation. I have introduced this concept. This means that one has to aspiration too

So I am seeing that I have to increase 50% expenses of food and beverages. So have to increase 150% in Pan, Tobacco & Intoxicants as party's and all have to be done. Clothing & footwear - I need to buy good brands. Housing can be done by increasing in 10% of expenses. Increase 150% in amusement because I want to travel In personal care I want to get into the next level of cosmetics, I don't want to restrict myself to HUL products, I will go to body care. And I will increase my aspirations.

I am going to do the next level of education, build skills, buy courses of elearnmarkets, So these are the aspirations that we want to do. You fill it late on that on what you spend more. You will see that you want 10lac 70k after 3 years. This is my aspiration after 3 years. You can do it for 2 years. The more you are aggressive you can decrease the period. I am conservative so I have done it for 3 years. So we want 10lac 70k after 3 years. I have space for expensed of 7lac20k

This means my personal inflation rate, considering the current inflation of all these components, is going to be 5.47% So my personal inflation of 4.5% in today's date will become 5.47% Now you understand why CPI rises? I have not increased the inflation components till now. I am assuming and if this rises too, then it will rise more. Why has been there an increment of 4.5% to 5.5%? Because of your aspiration, want good clothes, I need a new car.

I have to travel in Uber now and I cannot travel by auto. So 1% expenses are going to rise because of aspiration. But this is the same when the inflation rate remains the same. Let's assume that the savings rate becomes 3& from 2.5% in 3 years. because if inflation rises then the interest rates will rise too. Let's assume. Then even you are 2.5% negative. So you have to protect from this lethal inflation. and Inflation is not what the media talks. Inflation is what you have to work out using this excel that what is your aspiration inflation going to be.

What will I have to do? My current budget is 7lac 20k, aspiration budget is 10lac 70k and the deficit is 3.5lac and my earnings in today's date are 8lac. And my goal would be 8lac represents the current. So after 3 years, if I have to earn, given these are my expenses which include my 10% savings then my goal should be 12lacs after 3 years. So if you want 12 lac after 3 years and if you are saving 80k then your income should even grow at the same time savings should grow by 14%

If income and savings both increase by 14% then you will be able to come in that standard of living. cut shot where will 5.5% inflation go? if you will keep product generation below 5.5% then there would be nothing. If you would do 7% then even you won't be able to go to that aspiration level. Then you will have to compromise. You will get up from HUL products but will not be able to go Bodyshop products and above that -will take time. What are the brands above that? -Mac.

So if you have to go more up then you will have to increase it. Why are you worried? -You have put me in confusion that this much % how? -This is a reality check. The faster the reality check is better. Otherwise, our time is running out, so much money is ket in the bank in the savings account in India. Banks are enjoying, bank employees are enjoying, bank shareholders are enjoying your money. And you are just making your money dirt. So you take it out from your savings account.

This 2.5-3% interest rate looks good but take out from there and go to at least the 6% instrument and we had discussed in session 1 some products that give you 6% If you haven't seen then do watch the video. I have mentioned some in them. And if you to create the upper aspiration then you will have to go to the upper product return which is EQUITY. Equity is only an asset that can give you a 14-16% return. Then you will say that there is a risk, but the risk is necessary. Till the time you can take the risk, you should take risks. Calculated Risk should be taken.

And Investing process is a calculated risk. Mind the difference between trading & investing. We are talking about Investing which can have a structured calculated risks framework. In trading too it is there that the risk-reward ratio is 1:2, stop loss, There is no stop loss in investing. But you can manage your risks through portfolio allocation. We will learn that in the coming videos. So, stay tuned and do come back for the next video. because this is going to be a very interesting discussion henceforth.

I will share this excel Annapurna with you and my learners. Please play with this excel. If there is any feedback then do give it in the comments of this video. & try to prepare yourself for the next level on inflation & aspiration. So I have taught you this in excel. This is a quote that I had given you in the first ppt as well, repeating again. TAKE A SIMPLE IDEA, AND TAKE IT SERIOUSLY. It's a very simple idea but to take it seriously is very very important so you are taking it, keep taking more.

Sir in the previous video you had said, that if you want to do Investing the right way then you will have to read books too. So can you suggest some books that I can start as a novice investor? elearnmarkets.com/school where there are book summaries, 26. You take it completely. Those 26 book summaries are so nice books that if you do it once then I will talk to you when it's done. Because whatever you need for learning, the books knowledge that you required either Trading or Investing, little bit trading knowledge is even required because price behavior makes a comfort feel.

So you start with investing books, over there both categories are present and then after that add some trading books. So friends I hope you enjoyed it, I enjoy alot in recording, plus the questions are so relevant which is even more exciting. All knowledge is shared when good people join to ask good questions. Because the more you ask, the more homework I will do to answer you. And you can join with me in one more way by making more people join. So share this video. Very unique concept.

The more you will share the more people will bless you. Will get Karma. and I will get too. Thank you so much. See you in the next video again a very important topic will be revealed in the next video. It is going to be the power of compounding. It's a very simple concept but I am going to say you in such a way that your mind will open up that you didn't think/heard about the power of compounding that way like the way I'm going to say. Thank you so much. Bye bye. Take care of yourself.