Why inflation is a myth

Hey there!

Been a while since I wrote to you. I really want to get more active here on Substack, but I’m just not able to manage my time. Hopefully I’ll do better :)

But today, I’m writing about a very interesting topic — Inflation, and why it makes no sense in the real world.

Most finance influencers will tell you to “invest in products that beat inflation”. But my point here is, the inflation numbers declared by the government are just noise. They have nothing to do with your investments.

Let me tell you why..

The RBI recently reported retail inflation at 3.1%. On paper, that sounds comforting. In reality, if you’re reading this, your inflation is nowhere near that number.

The reason lies in how inflation is calculated. India’s Consumer Price Index (CPI) uses a “basket of goods” to represent what the average Indian household consumes. This basket still includes items like pan and tobacco, cereals, and even horse-cart fares.

But since you’re in the top 10% of India — professionals, entrepreneurs, investors—your lifestyle and expenses look very different — One, you don’t use things like horsecarts. And two, you want quality healthcare, world-class education, better housing, and comfort. And these don’t inflate at 3%.

Let me give you a few examples…

• Healthcare: Official figures put it at 4.57%. But industry data shows real medical costs are climbing 13% annually — among the steepest in Asia

• Education: The government says 4.0%. But school and university fees typically rise 10-12% each year, especially in private institutions (any parent reading this will agree)

• Lifestyle: Urban housing, dining, and travel grow far faster than 3.1%, though less frequently measured.

In effect, while the official CPI inflation number is 3.1%, your personal inflation is often closer to 8–10%.

Here’s how the gap plays out:

Suppose you plan with CPI at 3.1%. You build a portfolio targeting 8% annual returns, expecting to stay ahead by around 5%.

But if your actual inflation is 9%:

• At 3% inflation, ₹1,00,000 today needs to be ₹1,34,000 after 10 years.

• But at 9% inflation, you’ll need ₹2,37,000 for the same basket.

This means that your ₹1,34,000 will only buy about 57% of what you thought it would.

And your money has, just like that, lost 43% of its purchasing power!

Push this to 20 years, and it gets brutal. I don’t wan to do the calculation and scare you any more..

Three things:

1. Calculate your personal inflation. First things first — Track how your healthcare, education, housing, and lifestyle costs are really growing. This may be a time-consuming exercise, but it’s a one-time thing (reply and let me know if you want me to tell you how to do this)

2. Reset your benchmarks. Don’t settle for “beating government-declared inflation.” Aim to beat your inflation.

3. Diversify. Don’t just depend on Fixed Deposits for safe investments. There’s debt funds, bonds, real estate, gold, and a lot more — look outside of traditional asset classes.

The government-declared inflation might be 3.1%, but your life doesn’t run on averages. If you want to preserve and grow wealth, you need to invest against the inflation you actually live with — not the one RBI reports.

At ALT Investor, our weekly newsletter focuses on strategies for real investors with real lifestyles. We break down investments that can help you stand up to 8–10% inflation, not just 3%.

Subscribe here if you haven’t already.

I’ll see you again, soon!

PS: Please note that anything mentioned in the “Money simplified” newsletter is my personal view, and does not reflect the views of my employer.