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You couldn’t have escaped some of these statements in the recent past: The market has tanked, the GDP figures were disappointing. Another few hundred points down, the rupee is going to sink more; inflation figures are going to be bad. Sure, the disappointment in the tone and falling economic indicators must have caught the attention of every investor. But what most have missed is that the market is increasingly getting influenced by economic indicators and events — that too in faraway lands — in a big way.

Consider, for example, how the market danced to US Federal Reserve’s decision to continue with monetary easing or how it reacted to the appointment of the new Reserve Bank of India governor or his maiden policy. Sure, such events always influence markets, but the magnitude is something new. And, they have implications for your financial plan, including short-term as well as long-term goals. "Some economic indicators like inflation and exchange rate impact an individual’s finances directly while others like GDP growth rate give an idea of where the economy is headed.

Therefore, it is important to keep a close eye on the developments in this space. Also, all these events cannot be seen in isolation. It is their collective impact that needs to be taken into account. While individuals should not tweak their long-term financial plan on the basis of changes in the scenario in the short term, they can make adjustments once in a year. We advise our clients to review their portfolio annually and factor in the economic situation in the country," says certified financial planner Suresh Sadagopan, founder, Ladder7 Financial Advisories.

Read on to understand the impact of five such factors on your financial life:

GROSS DOMESTIC PRODUCT (GDP)

You must be familiar with opinion pieces that talk about how India, after witnessing the highs of over 8-9% growth in the previous decade, is crawling at a growth rate of just under 5% now. Ratings agency Crisil, in a report released recently, said the growth estimate has been reduced to "a decade-low of 4.8%" for 2013-14. In simple terms, the Indian economy is expected to continue to be sluggish. Slower growth, thus, dents job prospects, forcing many to rein-in their aspirations and reset the timelines of their financial goals. "Downbeat economic conditions mean that jobs are hard to come by and one should focus more on saving at this point of time," explains Madan Sabnavis, chief economist of CARE Ratings.

INFLATION

Given that price rise has been the one of the chief causes of governments being voted out of power in the past, it would be safe to assume that even laypersons are aware of how inflation — rate of growth in prices — affects their consumption spends. From an individual’s perspective, the consumer price index (CPI) and food inflation are more relevant than the wholesale price index (WPI) inflation. As per the figures released by the commerce ministry, CPI inflation for August 2013 is down to 9.52% from 9.64% in July. Wholoesale price inflation, on the other hand, inched up from 5.79% in July 2013 to 6.1% in August. Food items were costlier by 18.8%, compared to the same period last year.

"Inflation (especially food inflation) is close to any individual’s heart as this indicator decides the allocation of salary towards food, other items of necessity and luxury, and finally the allocation towards savings," says Indranil Pan, chief economist at Kotak Mahindra Bank. However, not many understand its impact on their savings and investments. "It helps you ascertain whether your portfolio is giving you real returns. For example, a bank deposit may fetch 9% return for the year. If you are taxed at a marginal rate of tax of 20%, then post-tax, your return would be 9% - (20% x 9% = 1.8%) = 7.2% pa.

Now, this is the nominal rate of return your money earns, post tax. If inflation is at 8% per annum that year, then effectively you have earned a real rate of return (nominal rate of return - inflation rate) of -0.8% (7.2% - 8%).