Imagine spending Rs 6000 on your groceries in 2025, ten years down the line, you are consuming similar products, that too in similar amounts, but the money you spend is higher. That is how inflation works, as it slowly erodes your purchasing power. The same goes for your investment, whether it is mutual funds via systematic investment plan (SIP), equities or fixed deposits.
Consumer Price Index is one of the popular scales to measure inflation. CPI inflation data is released by the Ministry of Statistics and Programme Implementation (MoSPI)’s National Statistical Office (NSO). CPI Inflation stood at a six-year low of 2.1% in June 2025. With experts hinting at a further decline in the CPI inflation (also known as retail inflation), let’s understand how it impacts investors’ portfolios and long-term wealth creation.
Retail Inflation At 6-Year-Low: What It Means For Your Investment? Lower inflationary conditions support the growth of inflation-adjusted returns. Low inflation combined with a range of factors, including high liquidity, consumption, corporate earnings, and per capita income, can lead to higher equity growth, according to Vinayak Magotra Founding Team & Products Head Centricity WealthTech. While inflation never has an immediate impact on an individual’s savings and investment returns, a multi-year average does impact the nominal value of the investment and returns. “Inflation is like slow rust on your money. You won’t notice it immediately, but over time it quietly chips away at your purchasing power. So even if you’re getting an 8-9% return on your portfolio, if inflation is running at 6%, your real gain is barely 2-3%. That’s the difference between looking rich on paper and feeling wealthy in real life,” explained Nikunj Saraf, VP, Choice Wealth.
Can Low Inflation Boost Your Savings? While a low CPI inflation rate can have a positive impact on savings and returns, the relationship between the two is way more complicated and dependent on additional factors. “While CPI is a generic benchmark, inflation linked to your long-term goals, like retirement and children’s education, is much higher and needs to be accounted for while planning for long-term goals,” explained Mayank Bhatnagar, Co- founder & COO, FinEdge.
Measures like CPI inflation would help provide a bird’s eye view of inflation in the country, but it also varies from person to person. Noting the difference between CPI inflation and the actual inflation for an investor, Nilesh D Naik, Head of Investment Products at Share.Market (PhonePe Wealth) noted, “The published CPI inflation is based on a certain mix of goods and services and the actual inflation for an investor would depend on his or her own consumption pattern.”
Does Low Inflation Make SIP Planning Easier? “When inflation cools off, the cost of your future goals doesn’t rise as sharply. That means your current SIP amount might actually be enough to get you there-without needing to stretch your monthly budget year after year. Also, lower inflation brings predictability. Your financial projections become more reliable, which takes the stress out of long-term planning. It doesn’t mean you reduce your SIP-but it does mean the journey becomes a bit smoother,” explained Nikunj Saraf, VP, Choice Wealth. SIPs function to build long-term wealth by absorbing shocks like economic crises, geopolitical uncertainties, inflation cycles, etc. But its power amplifies when situations are favourable, like lower inflation. When inflation cools off, the real power of SIP starts to show as the gap between nominal and real returns widens.
“If your SIP portfolio is compounding at 12% annually and inflation is trending at 4%, you’re effectively growing your purchasing power by 8% every year. That’s not just return on capital-it’s meaningful growth in real wealth. Over a 15-20 year horizon, this inflation-adjusted compounding significantly enhances corpus outcomes. The wealth delta between earning 8% real returns versus 4-5% can be the difference between just meeting a goal and exceeding it with surplus,” stated Saraf. How To Adjust SIPs According to Inflation? Inflation does not always remain low or high and moves in cycles, which means investors must adjust their strategy accordingly for long-term goals. “Low inflation makes long-term goal planning easier, as the target or the goal amount becomes relatively lower. But that is an ideal scenario as inflation moves in cycles, with ups and downs. Hence, a prudent strategy is to take a long-term average of inflation while planning for SIP investment and long-term goals. The good news is that if the average inflation turns out to be lower, you will end up having a more potent corpus for your important financial goal,”
How To Adjust SIPs According to Inflation? Inflation does not always remain low or high and moves in cycles, which means investors must adjust their strategy accordingly for long-term goals. “Low inflation makes long-term goal planning easier, as the target or the goal amount becomes relatively lower. But that is an ideal scenario as inflation moves in cycles, with ups and downs. Hence, a prudent strategy is to take a long-term average of inflation while planning for SIP investment and long-term goals. The good news is that if the average inflation turns out to be lower, you will end up having a more potent corpus for your important financial goal,” explained Bhatnagar. Which Investment Sectors Are Lucrative During a Low-Inflation Cycle? Consumer discretionary, banking and financial services, real estate, manufacturing and industrials, infrastructure, telecom and technology sectors, etc, are among the top sectors that are likely to benefit from low inflation and hence prove to be a better investment option, according to Ranjit Jha, MD & CEO, Rurash Financials.
“A lower inflation could have a positive immediate impact on bonds and fixed income funds as it implies lower interest rates, which are negatively correlated with bond prices. Lower interest rates could also lead to lower future return expectations from equities, resulting in higher valuation multiples that benefit existing equity investments,” said Naik, while cautioning that such outcomes are possible only if all else remains constant, which is a rare scenario.