How inflation erodes wealth, and what investors can do about it

Inflation doesn’t roar. It whispers.

Think of a frog in gradually boiling water. It doesn’t realise the danger—until it’s too late. That’s inflation. It doesn’t break headlines like a stock market crash. It doesn’t dominate news cycles like central bank rate decisions. But it’s always there—quietly eroding the value of your money, one percentage point at a time.

When markets drop, portfolios flash red. But inflation works differently. It doesn’t shock; it erodes. And unlike market volatility—which is temporary—inflation’s impact is permanent, especially if you don’t act on it.

Also read: Low inflation: Stoking high hopes?

Post-pandemic, inflation has evolved. It’s no longer just about food or oil prices. It’s now about wage shifts, broken supply chains, and new global trade equations. Western economies saw inflation spike to multi-decade highs. In India, inflation stayed stubbornly above target. And though central banks have tightened policy, such measures take time to trickle through. Meanwhile, the common saver is already feeling the pinch.

Your 6% returns aren’t really 6%

Here’s a simple thought experiment. Suppose your bank savings earn 6% annually. If inflation is running at 5.5%, your real return is just 0.5%. And after taxes, that figure may turn negative. In short, you’re not growing wealth—you’re losing purchasing power.

Yet many continue to chase nominal returns, ignoring inflation’s silent tax. A fixed deposit offering 7% may seem attractive. But once you adjust for inflation and tax, it’s like running on a treadmill: a lot of movement, no forward progress.

This is where a mindset shift becomes essential. Your investments should not just grow—they should outpace inflation. This is the line between financial progress and slow regression.

The answer lies in focusing on real returns—the inflation-adjusted growth of your money. And historically, one asset class has consistently delivered on this front: equities.

Also read: Keep track of trade turbulence amid a scenario of benign inflation

Equities: Noisy, but resilient

Equities can be volatile. But over long periods—10, 20, or even 30 years—they’ve delivered inflation-beating returns. Especially when invested through systematic investment plans (SIPs), equities help build wealth steadily and with discipline.

SIPs are more than just a tool—they’re a behaviour enabler. They help investors stay consistent through market ups and downs, news cycles, and uncertainty. They remove emotion from investing, automating the one thing inflation can’t erode: discipline.

No one-size-fits-all

Equities aren’t the only option. A well-diversified portfolio can help counter inflation more effectively. For instance:

Gold has historically done well during inflationary periods and economic uncertainty.

Short-duration or floating-rate debt instruments can offer safety and better alignment with interest rate cycles.

Real assets like REITs provide yield with a potential inflation hedge.

There’s no silver bullet. But there is a strategy: build a diversified toolkit that works together to protect and grow your purchasing power.

It’s time to redefine what we mean by wealth creation. It’s not just about growing your corpus. It’s about preserving your purchasing power over decades.

Your aim should be to ensure that your financial firepower in 2045 is stronger—not weaker—than it is today. That your retirement can withstand not just market downturns, but also the relentless march of rising prices.

The inflation trap

Market volatility makes headlines. Inflation doesn’t. And that’s what makes it more dangerous. It changes the rules of the game quietly, without warning.

The good news? Investors today have more access than ever—low-cost diversified funds, index strategies, hybrid products, and even inflation-linked tools are within reach. But tools alone aren’t enough. We need to change how we think.

Inflation isn’t background noise. It’s the soundtrack.

So stay invested. Stay diversified. And above all, stay real—in your expectations and in your approach.

Because the water’s heating. And it’s time to jump, not boil.

Also read: Savings rates have dropped to 2.7%. Here’s how to make your money work for you again

Swarup Anand Mohanty, vice chairman & CEO, Mirae Asset Investment Managers (India)