Inflation is usually measured by a consumer price index (CPI). Modest inflation (around 2%) is considered healthy for growth; high or unstable inflation erodes savings and complicates planning.
Cash under a mattress steadily loses real value. Investing in productive assets — stocks, real estate, some bonds — historically outpaces inflation over the long run, though not without volatility.
See also
Practice this in Aurora
Ask Auri — your AI budgeting coach — how this fits your money habits.
Talk to Auri →Frequently asked questions
How does inflation hurt savers?
If your savings earn 2% and inflation is 4%, you're losing 2% of purchasing power a year — even though the nominal balance grew.
Related terms
Compound interest
Interest earned on both your original investment and the interest it has already generated.
Index fund
A fund that mirrors an index rather than trying to beat it.
Bond
A loan you make to a company or government in exchange for regular interest payments.
High-yield savings account
A savings account that pays significantly higher interest than a traditional bank account.
CPI (Consumer Price Index)
A widely-followed measure of consumer inflation based on a basket of goods and services.
TIPS (Treasury Inflation-Protected Securities)
US Treasury bonds whose principal adjusts with inflation, protecting real purchasing power.
Real return
Investment return after subtracting inflation — the true growth of purchasing power.