Economy
Inflation
The rate at which the general level of prices for goods and services rises, eroding purchasing power over time.
Example
At 3% annual inflation, something that costs $100 today costs about $134 in ten years — the same dollar buys less over time.
Common Misconception
Inflation isn't just "prices going up" in isolation — what matters for your finances is whether your income and investment returns are keeping pace with it, since a raise smaller than inflation is actually a pay cut in real terms.
Why It Matters
Inflation is a key reason to keep long-term savings invested rather than sitting in cash — cash earning less than the inflation rate is quietly losing purchasing power every year.