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The Many Faces
of Inflation
From your grocery bag to artificial intelligence — prices are changing in ways most people never notice. Here's the full picture.
When someone says "inflation," most of us picture petrol prices going up, or the same grocery bill feeling heavier than last month. But inflation — the shifting relationship between money and what it buys — is far more complex, and far sneakier, than that single image. It shows up in the shrinking biscuit packet you didn't notice, the salary that hasn't budged while everything else has, and even in a rare, counterintuitive form: things that are getting dramatically cheaper every year.
This piece walks you through every major form of inflation — in plain language, with real examples from your daily life.
Inflation The Classic
Let's start with the one we all know. Inflation is simply the rise in the general price level of goods and services over time. A litre of petrol costs more than it did three years ago. Your doctor's consultation fee has gone up. The same packet of atta costs ₹50 today that cost ₹35 a few years back.
In technical terms, inflation is measured by the Consumer Price Index (CPI) — a basket of commonly purchased goods and services tracked month to month. When that basket costs more, inflation is said to be "high."
Not all inflation is bad. Mild, predictable inflation (around 2–4%) is a sign of a growing economy. The problem is when it surges beyond control — as seen after the Covid disruptions and the Russia-Ukraine war, which pushed global food and fuel prices sharply higher.
What drives inflation? Too much money chasing too few goods, supply chain shocks, fuel cost increases, or even government policy can all push prices up. When it crosses a threshold, everyday people feel its pinch the hardest — especially those on fixed incomes.
Deflation The Falling Price
Deflation is the opposite of inflation — prices fall over time. This sounds wonderful, right? If things get cheaper, you get more value for your money. And in some sectors, that is exactly what has happened.
Think about what a 1 TB hard drive cost in 2010 versus today. Or what it cost to make a phone call in 1995 versus now. Digital storage, computing power, and internet bandwidth have all experienced relentless, extraordinary deflation for decades.
The most dramatic recent example is artificial intelligence. According to research by Epoch AI, the price to achieve GPT-4-level performance on PhD-level science questions fell by roughly 40× per year. Across all benchmarks studied, prices declined anywhere between 9× and 900× per year, with a median of 50× — a breathtaking collapse in the cost of "machine intelligence."
"Between November 2022 and October 2024, the cost to run AI at GPT-3.5's level of performance dropped by more than 280× — from $20.00 to just $0.07 per million tokens."
— Stanford HAI 2025 AI Index Report, via Cerulean AI
This is deflation in its most spectacular modern form. But not all deflation is good news. When deflation hits a whole economy — every sector, every price — people start delaying purchases expecting things to get cheaper. Businesses suffer, wages fall, and a vicious cycle can begin. Japan spent nearly three decades trapped in this kind of deflationary stagnation, an experience economists call the "Lost Decade" (which stretched into Lost Decades).
Stagflation The Double Trap
Stagflation is the economist's nightmare: a combination of stagnant wages + rising inflation. The word itself is a portmanteau of "stagnation" and "inflation." Prices rise, but your income doesn't. Each month, your purchasing power quietly shrinks.
Classic economics said this couldn't happen — usually, inflation comes with a growing economy and rising wages. But stagflation can occur when supply shocks (like an oil crisis) drive prices up even as the economy slows. The United States experienced severe stagflation in the 1970s during the OPEC oil embargo, when both unemployment and inflation soared together.
India today shows worrying echoes of stagflationary pressure. Despite India's GDP growing at 6–7%, regular wages actually contracted by 0.07% over FY22–FY24, according to the government's own Periodic Labour Force Survey. Meanwhile, the cost of food, rent, and daily essentials kept climbing.
Employee compensation at 457 listed companies rose by just 4.8% in Q4FY25 — the fifth consecutive quarter of single-digit salary growth, and the slowest in at least 17 quarters.
— Business Standard analysis, reported in Policy Circle, May 2025
For the ordinary salaried worker, this is felt viscerally: the same job, the same take-home, but fewer goods on the table. This is stagflation lived from the inside — not in a macroeconomics textbook, but in the household budget every month.
Shrinkflation The Silent Thief
This one is perhaps the sneakiest. Shrinkflation happens when the price of a product stays the same but the quantity inside quietly shrinks. The packet looks identical on the shelf. The MRP hasn't changed. But you're getting less — you just don't know it unless you read the label very carefully.
Sound familiar? It should. India has seen widespread shrinkflation in FMCG products over the last few years.
Why do companies do this? Because for products priced at ₹5 or ₹10, raising the sticker price is extremely hard — customers will simply switch brands. Shrinkflation is inflation in disguise. Companies absorb rising input costs (wheat, palm oil, packaging) by giving you less, not charging you more. It's technically legal — the weight is printed on the pack — but it's rarely communicated honestly to consumers.
Parle Products derives a massive 70% of its revenue from ₹10 packs and below — making outright price increases nearly impossible at that tier. Shrinkflation becomes the only lever available.
— Equitymaster, "Shrinkflation: The Inflation You're Not Supposed to See"
One deeper problem: shrinkflation distorts official inflation data. If a 200g packet shrinks to 180g while its price stays flat, the Consumer Price Index registers zero inflation — but you, the buyer, are effectively paying 11% more per gram. The CPI doesn't capture what you're actually losing.
Skimpflation The Quality Fade
A close cousin of shrinkflation is skimpflation — where the size or price of a product stays the same but the quality silently degrades. You're not getting less in volume; you're getting worse.
Think of the hotel that used to offer a full breakfast buffet, now offering a handful of packaged muffins and instant coffee — for the same room rate. Or the airline that removed the complimentary meal, or the app that downgraded its free tier. Or the packaged food brand that quietly swapped a quality ingredient for a cheaper substitute.
Skimpflation is even harder to spot than shrinkflation because quality is subjective and hard to measure. You might not notice until you finish the meal and think, "That didn't taste as good as it used to." The CPI certainly won't catch it.
Greedflation The Corporate Cushion
Here is a controversial but increasingly discussed form: greedflation, sometimes called "profit-led inflation" by economists. This happens when companies raise prices beyond what their actual cost increases justify — using a period of high inflation as cover to fatten their margins.
The argument goes like this: during a genuine inflation event (say, post-Covid supply shocks), it becomes socially acceptable to raise prices. Companies reasonably pass on higher costs. But some go further — using the inflationary fog to pocket extra margin, knowing consumers won't single out one brand for blame when "everything is going up."
The Indian data raises an uncomfortable question. Profits of Nifty 500 firms grew at a staggering 34.5% per year between 2020 and 2024 — while GDP grew at just 10.1%, and wages for regular employees contracted. Corporate EBITDA margins held stable at ~22%, even as consumers paid more. Some of that gap is efficiency. But not all of it.
Personal Inflation Your Own Number
Here's the one that hits closest to home — and the one most people never calculate. Personal inflation is the actual rate at which your own cost of living is rising, based on how you specifically spend your money.
The official CPI is an average across millions of households. It weights food, fuel, housing, healthcare, education, and entertainment in standardised proportions. But your life doesn't match that average. If you have school-going children, you know that private school fees have risen far faster than the CPI. If you have an elderly parent with chronic illness, pharmaceutical costs and doctor visits are your personal inflation basket — and those prices have outpaced official figures by a wide margin.
The lesson: don't just track the news headline about "CPI at 5%." Build your own mental model. List your top 10 monthly expenses. Track them year over year. Your personal inflation rate — the number that actually matters for your household — could be 8%, or 12%, or even 15%.
Asset Price Inflation The Rich Get Richer
There's one final, crucial form that rarely makes the front page but reshapes wealth inequality more powerfully than any other: asset price inflation — the rapid rise in prices of homes, stocks, gold, and other investment assets.
When a central bank cuts interest rates or prints money to stimulate the economy, that money flows somewhere. It usually flows fastest into assets — real estate, equity markets, luxury goods. Over the last decade, Indian housing prices in major metros have risen dramatically, often far outpacing both CPI and wage growth. The Sensex and Nifty have delivered multi-fold returns. Gold has appreciated significantly.
The problem? These assets are already owned by those who are already wealthy. A salaried worker trying to save enough to buy their first home is not benefiting from the house price going up — they're being priced out. Asset price inflation, in essence, is an invisible tax on those without assets, and a gift to those who already have them.
This is why two people can live in the same city, face the same "5% CPI," yet experience radically different economic realities. The person who owns a flat and holds stocks is experiencing wealth growth. The person renting and saving in a fixed deposit is slowly falling behind.
So, What Do You Do With All This?
Understanding the many flavours of inflation is not just an academic exercise. It's a practical survival skill. The official CPI won't tell you about the Parle-G packet shrinking. It won't capture the quality of your hotel breakfast declining. It definitely won't measure how quickly AI is making certain services dramatically cheaper — or how your salary is quietly losing ground in real terms.
The smart response is to stay curious and concrete. Track your own spending. Watch for product downsizing. Invest in assets (not just savings accounts) to keep pace with asset inflation. And celebrate genuine deflation — like the falling cost of intelligence — because for once, that particular price drop is working in everyone's favour.
Inflation is everywhere. Now you know where to look.
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