Clear definitions
Inflation, in everyday language.
Use these terms to read a budget, chart or financial claim with more confidence.
- Inflation
- A rise in the general price level. Your money buys less of a comparable basket over time.
- Lifestyle inflation
- Spending more because your income or expectations rise, such as moving to a larger home or upgrading every holiday. It can happen even when market prices barely change.
- Personal inflation
- The change in the cost of your own basket. A household paying private-school fees and supporting parents may experience a different rate from the national average.
- Disinflation
- Prices are still rising, but more slowly. Inflation falling from 6% to 3% does not mean prices fell 3%.
- Deflation
- A fall in the general price level over a period. A cheaper tomato crop alone is not economy-wide deflation.
- CPI
- Consumer Price Index: a weighted measure of prices households pay for a defined basket of goods and services.
- Headline inflation
- The overall inflation rate, including volatile components such as food and fuel.
- Core inflation
- An inflation measure excluding specified volatile components, commonly food and fuel. Always check the publisher’s definition.
- Base year
- The reference period assigned an index value of 100. An index of 150 means prices in that series are 50% above the base, not that inflation is 150%.
- Base effect
- Last year’s unusually high or low comparison can move today’s year-on-year rate even if current prices change only slightly.
- Nominal
- A money amount before adjusting for inflation. A salary rising 5% has 5% nominal growth.
- Real
- Adjusted for purchasing power. Real growth is (1 + nominal growth) ÷ (1 + inflation) − 1. At 5% pay growth and 6% inflation, purchasing power falls about 0.94%.
- Compounding
- Each year’s change applies to an amount already changed in previous years. Prices rising 5% for 10 years increase by about 63%, not 50%.
- Savings rate
- The share of take-home income you keep rather than spend. Saving a larger rupee amount does not always mean your savings rate improved.
- Shrinkflation
- A smaller quantity or reduced service for the same sticker price. Compare unit prices and quality, not only the bill.
- Asset-price inflation
- Rising prices of assets such as homes or shares. It differs from the cost of consuming housing services, such as rent.
- Currency depreciation
- A currency loses value against another. If INR per dollar rises, the same dollar buys more rupees, but Indian prices and overseas expenses may also change.
- Opportunity cost
- What you give up by using money one way. An upgrade today can mean less investment income or flexibility later.
- Hedonic / quality adjustment
- A statistical method used to separate a product’s price change from a change in quality or features. A newer car is not always a like-for-like comparison.
- Fixed commitment
- A recurring payment that is hard to reverse quickly, such as a larger mortgage or school fees. It can make a temporary income increase feel permanent.
Evidence and limits
Historical inflation is not a forecast. A national index cannot predict a particular family’s school, medical, property or travel bill. The 2026 CPI base change means old and new index levels must not be directly spliced together.
Sources checked 5 Sep 2026. World Bank / IMF annual inflation series ↗ · MoSPI CPI releases and methodology ↗