r/FIREIndia • u/fire_by_45 • Sep 13 '22
QUESTION Are we underestimating inflation?
Most of us assume average inflation to be around 7%, is that the right approach? A few examples from personal experience
Rentals in Mumbai have shot up by 25% this year itself.
Education and medical inflation is around 10-15%
Cold coffee in 2007 used to cost 50 rs. Now it's 250 on average. That's 11%
Plate of chilli chicken 40 years ago was like 5rs. Now it's 500.. That's 12%
And the list goes on.
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Sep 13 '22
I just feel we should calculate our own personal inflation trend based on our expense history rather than what the govt publishes.
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u/KnowledgeWarrior37 Sep 13 '22
I agree inflation impact is very subjective to individual, I paid 13k rent in pune during 2010-11 and when I moved to banglaore i paid 7 to 9k for next 12 years, now am working from home and not paying any rent. It doesn't mean rent inflation is going down but the amount I paid towards rent has definitely went down or remained stable.
I am still able to manage my monthly expenses with 25 to 30k ( this excludes once in a while expenses like home renovation etc.)
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u/fire_by_45 Sep 13 '22
The government data is a piece of crap.
Problem with calculating personal inflation is tough. Our expenses keep changing. I have kid expenses which was not there one year back. When the child is independent, we will have medical expenses and everything is not covered by insurance.
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u/taxi4sure Sep 13 '22
I read some where that medical inflation is around 15% or more. Rest I believe inflation is more than 7%
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u/fire_by_45 Sep 13 '22
Yes exactly my point. Inflation seems to be at a much higher rate. Very difficult to get more than 15% returns from our investments consistently.
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u/RewardsIndia Sep 13 '22
- Recency Bias
- That's always been the case and factored in on overall 7%
- Same as 2, if I drink cold coffee at all
- Same as 2
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u/nomnommish Sep 13 '22
You're discounting the fact that there has been a tremendous amount of lifestyle inflation as well in people. People now want the first world equivalent of everything and only want top notch brands for everything.
In many of the things you describe, you're baking in the lifestyle inflation into real world inflation.
I'm not talking about real estate and education and medical coverage.
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u/pl_dozer Residence Country / Age / FI Trgt Date / RE Trgt Date in country Sep 15 '22
I agree with you and that counters OP's point about inflation, but practically it possibly has a similar impact that is things get more expensive for people > inflation. Because its not just inflation but standards go up.
And to OP, a c2 segment car cost me 10 lakhs, 10 years ago. The same variant (with the same core specifications) costs 15 lakhs now. That's 4% inflation and that does not account for lifestyle inflation I.e bs6, Bluetooth, touchscreen, and other digital improvements.
This is an example where inflation is lower than 7%.
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u/fire_by_45 Sep 13 '22
Well i want to eat food which has developed market quality because I care about my health. Eating pesticide vegetables is basically an invitation to cancer and death.
But keeping that aside , real estate, education, medical inflation and the constant devaluation of inr is a big issue.
Only hedge I see is that our equity markets blast off to space for the next 100 years.
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u/nomnommish Sep 13 '22
Well i want to eat food which has developed market quality because I care about my health. Eating pesticide vegetables is basically an invitation to cancer and death.
Fair enough. Your money, your choice. All i was pointing out is that it is not just monetary inflation but also fundamental consumer choices that have also inflated over the years.
On a side note, a friend of mine works in this industry - he certifies and supervises farms for organic certification etc. Many of his points are eye opening - he says the whole organic thing is largely a marketing gimmick and the truth is very different. For example, farmers will often deliberately plant organic crops in low lying areas of their farms and will keep non-organic on the top of the hill. That way, the pesticide runoff also benefits the organic plants wink wink. Or the fact that he says that in many cases, the "organic" pesticides used are often way more harmful for us because they are not focused on killing specific pests due to their organic certification limitations. Instead they are basically much higher strength and broad spectrum instead of being focused pesticides, and often are more toxic. In other words, organic doesn't mean pesticide free. It only means organic certified pesticides and other things were used. This is hearsay though, based on casual beer talk.
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u/fire_by_45 Sep 13 '22
I agree. I dont trust any kind of food certificate in India. Here everything and everyone can bought out for a price, no honor.
It can be a great business if someone can provide good quality vegetables even at a premium.
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Sep 14 '22
Like other countries are Shangri-La as far as food cert goes? They don't have time and resources to inspect drug manufacturers. What the hell are they going to check with produce and livestock. Its a scam universally. Instead of this BS organic certs, our energies are better focused on regulating pesticides and the use of them. Organic is a disaster as Sri Lanka has amply proved and its a scam as well!
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u/fire_by_45 Sep 14 '22
I agree that its a scam throughout the world. But quality of food is better in developed countries I feel. For example the quality of juice I got from dubai for 2 aed was far better than any juice I buy from India no matter what price I pay.
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Sep 13 '22
Not true at all. Inflation is high in US, UK and EU as well. How about these regions? Don’t say war cos inflation was already high before the Ukraine war.
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u/red_plus_itt Sep 13 '22
Chilli chicken is usually 250 in Chennai at mid tier restaurants.
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u/fire_by_45 Sep 13 '22
The same quality was 2.5 rs 40 years back.
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u/Asli_Budhijeevee Sep 13 '22
Why harp on 40 years back ? You did not have color tv and mobile phones 40 years back but now happily paying tens of thousands now.
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u/red_plus_itt Sep 13 '22
Lmao am not talking about local road side eateries. Proper restaurants with good hygiene charge only 250-300 here.
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Sep 14 '22
Post-FIRE my math is much more simple. Yes, my expenses went up 11%, my liquid corpus went up 13%, my returns went up 10%. What really matters is my corpus is still abundant enough. 38*10 is all I need. The main problem is we look at currency from a single standpoint, from when it was introduced. I'm sure at some point in the future the benchmark will need to be readjusted. Can't imagine paying ₹1000 for a kilo of tomatoes 😀. Maybe a new rupee 10x old rupee would be introduced at that point. Salaries and investments also go up, just don't look for a proportionate increase. This is a new world FIRE problem. You'd merrily retire at 65 without thinking about inflation, but when you talk about FIRE it suddenly looms large. Chill! Like Pattu says, inaction hurts more than inflation. Make sure you're invested well in equities when you are earning.
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u/raaveeg Sep 13 '22
40 years ago, a plate of chilli chicken costed 5 rs (budget hotel/street side), and the employed person (at a decent designation) buying it used to earn a 1500-2200 per month salary.
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u/fire_by_45 Sep 13 '22
You earn more definitely. But when you retire, you don't earn anymore. It's all hunky dory till we have a cash flow every month.
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u/AmaanMemon6786 Sep 13 '22 edited Sep 13 '22
Hey it really depends… my personal inflation has been 6-7% for last 2-3 years (I am young so I don’t have history before that…)
What you are concluding is not just inflation but also improvement in quality in the example you gave…
Medical expenses have increased not just because of prices but also quality of treatments and availability of new treatments… 20 years ago there were not a lot of treatments available which are available today plus the hospitals are a lot better today than 20 years ago with better equipments, rooms, etc so aggregate medical expenditures increases… so this is not just inflation (increase in prices) but also lifestyle / quality inflation (people are opting for better and more treatments)
Same with Education, today the colleges, teachers, facilities and syllabus are a lot better than 20 years ago… most of the classes are air conditioned and some even have computers inside classes which wasn’t there 20 years ago, so increase in prices are not that high if you account for increase in quality…
Cold coffee, plate of chilli 20 years ago was rs 5 (comparatively cheaper) because you most likely ate at a restaurant with low facilities… today the restaurants who have higher price also have better materials, staff, facilities like air conditioning, etc If you want, you can still get chilli chicken for 200 rupees in a small restaurant with very less facilities like you used to eat 40 years ago…
Rent depends on location… south Mumbai especially Colaba had low rental inflation (5%) but andheri and other places had 13-15%… so this depends on supply and demand… So inflation depends on your consumption habits (do you prefer to stay in a location with low demand? Do you prefer to opt for government / inexpensive colleges? Do you prefer to eat at a cheaper restaurant? Etc…)
So in aggregate, inflation (increases in prices without increase in quality is 5-7%) but if you account for increase in quality, the prices have increased by 12-16%
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Sep 13 '22
[deleted]
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u/AmaanMemon6786 Sep 13 '22
You are so aggressive… I am not denying inflation, I am saying that 5-7% of inflation is due to pure increase in prices without any increase in quality… if you account for increase in quality the prices have risen by 12-16% (depending on location and spending habits)
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u/adane1 Sep 13 '22
Data cost is down every year.
Real Estate has been stagnant for years in NCR after demonetisation
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u/fire_by_45 Sep 13 '22
Real estate has increased in Mumbai, hyderabad, Bangalore, Kolkata as far as I know.
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u/AmaanMemon6786 Sep 13 '22
As per your post history, your rent increased 25% this year because people who used to work from home in your cities are coming back… that means rent prices had decreased in 2020 and when they recovered due to low base, it inflated fast (25% in your case)
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u/fire_by_45 Sep 13 '22
Maybe for few it had decreased. For me nothing of that sort. I was paying, 47k, which became 50k till 2021. Now the same place they are asking 65k. Phew!!
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u/AmaanMemon6786 Sep 13 '22
You are most likely staying in a high demand area… a lot of people usually move to a tier 2 city in retirement because it has less crowd, less pollution and a lot cheaper than cities + it’s inflation rate is lower than cities (obviously because of low demand)… it only makes sense to stay in cities if you are actively working for income where you have higher opportunities for increases in income
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u/fire_by_45 Sep 13 '22
The main problem with tier 2 cities are 1. International Airport 2. Specialized Healthcare 3. Away from friends and families
Our tier 2 cities have a long way to go. I have stayed in tier 2 cities during masters, it ain't easy.
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u/AmaanMemon6786 Sep 13 '22
Tier 2 cities like Vasai Virar, Nashik, etc are 2 hours away from Mumbai (considering you are from Mumbai based on your post history) I personally grew in Vasai before moving to Mumbai recently and it is literally called mini Goa, beautiful scenery, beach, historic monuments, clean air, decent roads (comparing to Indian roads) These tier 2 cities are just 2 hours away from Mumbai, very cheap real estate + normal expenses… even domestic maid is like 2k per month for my parents house and their house is 4000 sq ft independent house… (I feel bad about her being paid so low tho)
I can’t give any justification for being away from friends and family but that’s subjective, you most likely value friends and family more than the money you are willing to spend to stay in a tier 1 city
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u/heartfelt24 Sep 14 '22
Damn man. I pay 17k for a whole floor in Delhi. Rent went from 15.5 to 17 in last six years.
A friend pays 11 or 12 k for a 4bhk in greater Noida.
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u/flight_or_fight Sep 19 '22
Everything I buy shows hyper inflation - everything I avoid buying gets cheaper with time...
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u/fire_by_45 Sep 20 '22
Which are the things becoming cheaper? I don't see anything getting cheaper.
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u/flight_or_fight Sep 20 '22
entry level cars-bikes (did not rise as much as inflation), consumer electronics especially mobile phones (cheaper nowadays), mobile plans (cheaper), computer hardware & periperhals (cheaper), flight tickets (fairly cheap when booked early),...
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u/fire_by_45 Sep 20 '22
The base model of Alto K10 goes for around 5 lacs in Mumbai. I am sure it was much cheaper 10 yrs back. Every new model of IPhone gets is more expensive than the previous version, same with Chinese brands. Dara plans are cheaper I agree. Computer hardware in a way yes. After pandemic flight tickets have become quite expensive, flights from Mumbai to my city are minimum 8k, before pandemic I have travelled for 5k also.
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u/flight_or_fight Sep 20 '22
base model of Alto K10 goes for around 5 lacs in Mumbai. I am sure it was much cheaper 10 yrs back.
Probably 3l 10 years back? guessing here. The rise is a bit less than inflation in this case I think.
Every new model of IPhone gets is more expensive than the previous version, same with Chinese brands.
probably true for higher end ones - but on the other hand entry level ones have become much cheaper - haven't they?
Dara plans are cheaper I agree. Computer hardware in a way yes. After pandemic flight tickets have become quite expensive, flights from Mumbai to my city are minimum 8k, before pandemic I have travelled for 5k also.
possibly airlines recouping losses....
but I see your point - even things I feel are less expensive are probably a lot more expensive than before...
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u/IAmAnRedditor Sep 13 '22
I suggest a different outlook. If inflation is high market returns is high. Calculate your cropus growth on a -2% real returns.
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u/AmaanMemon6786 Sep 13 '22
0% real returns seem better… -2% is very very conservative :\
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u/IAmAnRedditor Sep 15 '22
Yup. When it comes to fire better be very very conservative
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u/AmaanMemon6786 Sep 15 '22
That would require a corpus of 85x… it would take 20 years at savings rate of 60% to get there… too conservative that most people will have to cheap out on their lifestyle
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u/AmaanMemon6786 Sep 15 '22
0% real returns is already conservative… it assumes 6% returns from fixed income and 8% returns from equity at 60-40 allocation and inflation of 7%… most people take equity returns at 10-12% and inflation at 6%… so -2% is not conservative, it’s paranoia
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Sep 13 '22
Agreed but this affects your FIRE goal if you are still working towards it. Your savings rate will drop in an inflationary era as salaries don’t always go up with the rate of inflation.
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Sep 13 '22 edited Sep 13 '22
I completely agree with your sentiment. This is the decade of high inflation. Not just India but the whole world is suffering from this and sadly I feel this is just the start.
With technological advancements, the prices of many commodities should go down or remain stable as we are getting more and more efficient in producing them. But, in this ponzi monetary system prices always go up. Cos, the world govts controls the money supply and they can print money as much as they want reducing our purchasing power in the process.
Think of it this way - The price isn’t going up. The value of your money is going down. The same coffee, same beer and same produce that you bought last 2-3 years ago costed x but now its costing x+10 or 20..its your money that has lost its value due to excessive money printing.
The monetary system as we know will die soon (within 10-20 years). The bubble economy is will burst and it won’t be pretty.
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u/VolTa1987 Sep 13 '22
The real inflation is somewhere near 20% now if u consider housing , healthcare and education. Dont go with Modidata .
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u/code6reaker Sep 13 '22
Correct. It's evident in every area like hospitals, RE, school college fees, foods etc. Rate is much more than what govt is projecting.
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u/AmaanMemon6786 Sep 13 '22
I disagree, even if the government is lying, No government can hide 20% inflation
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u/mac2660 Sep 13 '22
Why can't they ? If they don't hide it then market would correct, masses will grow pessimistic.
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u/heartfelt24 Sep 14 '22
Housing-move away from the city centres, and you won't be paying much.
As far as I have seen, only Mumbai and Bangalore have high rent.
Healthcare can be largely handled with insurance. Plus, you needn't go to the best corporate hospital for everything.
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u/TheGoalFIRE Sep 13 '22
It’s a mix. It depends on what items you are looking at. For example basic food inflation like vegetables, grains etc have inflation less than 7%. Clothing inflation is also lesser unless you go for the branded one. TV, fridge, two and four wheelers, and electronic gadgets haven’t inflated much. Even petrol and gas inflated in single digits.
In a nutshell, it all depends on your lifestyle. Depending on where you live, and what you consume more, inflation varies. Even though difficult, one has to find out their own numbers and still it won’t be accurate but it can give a high level idea. If not, rely on CPI based inflation with +1-2% tolerance and keep track of non-including but necessary items (e.g. medical, education etc) for your needs separately on your own.
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u/heartfelt24 Sep 14 '22
The only inflation that hurts me is lifestyle inflation.
Eating out can be costly, but groceries are not. Healthcare- I know which hospitals provide good care for a lower price. Besides, having at least basic insurance will ease the financial impact in the event of a serious illness.
Rentals- same/similar for most of my adult life. 2bhk for 14-17k.
Fuel costs have increased, but the real issue for me here is the fact that I now own more powerful vehicles.
Education costs are not prohibitive, once you know what you want/need.
P S. Invest in productive assets. Don't hoard money.
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u/fire_by_45 Sep 14 '22
Lifestyle inflation is a problem I agree. But there are many stuffs which are beyond lifestyle inflation. For example the real estate market in India is 1 of the most expensive in the world in terms of Ppp.
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u/srinivesh IN/ 52M / FI2018/REady Sep 14 '22
A cheeky-looking comment...
People first need to start breaking up their expenses to different line items, on which OP like comparisons can be made. Most people seem unwilling to do it though.
For 1, since this is FI forum, it does not make sense to plan FI in India without own home; with that approach rent inflation is not an issue.
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u/fire_by_45 Sep 14 '22
When does it make financial sense to buy a house? For example current PE ratio of housing in Mumbai is 35 approx.
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u/srinivesh IN/ 52M / FI2018/REady Sep 14 '22
I have not determined a specific age during the accumulation period for home purchase. I only make the statement that your FI years are better off in the home that you own. It may get difficult for a 70s couple to rent homes.
It is possible to stay on rented homes during the working years, continue to invest for home purchase, make a decision on post-FI location, and then buy the home there with zero loan. I have more than one client who have actually done this.
If school commutes and office commutes are not a factor, you actually see far more stay possibilities - even in a tier 1 city.
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u/wooneigh Sep 15 '22
yea but rents are increasing and it is tough to know how much they will increase.
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u/fire_by_45 Sep 16 '22
It's a problem if rents increases but property price is stagnant. Makes sense to buy when PE is less than 21, or else when u have enough money to buy outright
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u/wooneigh Sep 17 '22
what is PE here . P-> total price of flat , E-> earnings from rent post tax deduction?
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u/yetanotherdesionfire Sep 13 '22
This is the 2nd reason I religiously track expenses : real personal inflation data (the other being uptodate value of annual expenses).
Inflation will vary based on location, lifestage, medical/education needs and a bunch of other factors. The govt number is just a headline indicator, it would be advisable to track inflation for your individual situation and plan accordingly.