Inflation Explained: Why $100 Buys Less Every Year
Aggiornato: · 5 min · Beginner
Inflation is the quiet erosion of purchasing power. Understand how it is measured, why it matters for savers, and the difference between nominal and real values.
What inflation actually measures
Official statistics track a basket of goods and services — food, housing, transport, healthcare — and compare its cost over time. Your personal inflation rate differs from the headline number depending on what you actually buy.
The rule of 72, in reverse
Divide 72 by an inflation rate to estimate years for prices to double. At 3%, prices roughly double every 24 years. Cash that earns nothing loses half its purchasing power in that span even though the account balance never falls.
Nominal vs. real
A 5% nominal return with 3% inflation is closer to 2% real. Always compare financial projections in inflation-adjusted terms, especially over multi-decade goals like retirement.
What this does not mean
Understanding inflation is not a recommendation to invest all cash. Emergency money needs safety and liquidity; accepting market risk with funds you need next month is a different mistake. Balancing the two is personal planning — not investment advice.
Calculator FAQ
What is the difference between education and advice?
Education explains how a concept or formula works in general. Advice recommends what you personally should buy or do. AILICAI provides only the first, and suggests a licensed professional for the second.
Why are returns labeled hypothetical?
Because no one can know future returns, and showing a single smooth growth line can mislead. All projections here are simulations you control — not promises.