Inflation is when the prices of essential goods increase. India is going through inflation. One may ask – “what’s the problem with inflation?” The biggest problem is when inflation happens, but wages and salaries don’t increase. This means… Suppose your salary is Rs. 25,000 per month. Last month, you bought your groceries for Rs. 2,000. This month, the same Rs. 2,000 will get you lesser quantity of groceries. Last month, you bought 10 bananas for Rs. 50. This month, you can buy only 6 bananas for Rs. 50. So the value of the salary in your hand “shrinks”. If your salary stays the same for many months, the value of your salary shrinks further.
Inflation is one financial concept that we all should be very well aware of. Our schools didn’t teach enough about how inflation should be the benchmark for every single financial decision and investment we make. I understood the importance of inflation and investing after reading at least 4 books and reading several articles and discussing with many experienced business people. I regularly conduct workshops on “financial planning” where I teach how to make financial decisions based on inflation. If interested, contact me.
Now coming back to the main topic… When inflation happens, who are the ones who benefit from it? It is the business class. Among the business class, the ones who are in high demand and the ones who sell the most essential items in the market. Most of these items are not regulated by the government. So there can be a lot of price rise, but the government cannot do anything about it. If the price of petrol rises today, the price of vegetables increases the very next day or at least within a week. Most business owners increase their prices within 1-2 days after the petrol price increases.
On the other hand, the people who are in fixed jobs will not get a higher salary the next month. Never! The next increase in the salary “may” happen during the next appraisal season. In many unorganised and even well established private jobs, the salary increase has no scientific formula. The organisation decides some criteria and increases the salary by around 2-3% , while inflation is around 7-8%. Government constitutes pay commission once in a few years. By the time the payment commission submits its report, inflation would have increased further. Government employees get the benefit of pay commission hikes in a retrospective manner. However private employees do not get this benefit! Well established corporate jobs at times may have a good 10-15% yearly hike, which easily beats the inflation.
If you happen to be in the teaching profession, you’ll see that the fees of the students increases every year by at least 30-40%, but your salary increases by maximum 3-4%. This is one more reason why smart people who want to lead a good life should never get into the teaching profession. Once upon a time, teaching profession was touted as the field where salary may be less, but we have not much tensions. Gone are those days. Now teaching profession has lot of pressure and no good pay also! Bhaaag!!!
To conclude:
- People in businesses that are in demand get the immediate benefit of inflation.
- People in fixed jobs don’t get any benefit due to inflation. In fact, fixed jobs people never get compensated for the loss they suffer due to inflation.
- People in government jobs get compensated for the inflation to a good extent due to the “pay commissions”. They even get compensated retrospectively. Although the government may delay the payments, they do get the benefit.
- People in the well paying corporate jobs who get a yearly hike of more than 10% are the ones who are luckier than the government servants.
- People in private jobs where hike is less than 7% are the worst victims of inflation. Ask teachers what their hike percentage is. You’ll realise the reality!
