Inflation

By Greg Parsons, editor

Educational only, not financial advice.

Inflation is the rate at which the general price level rises over time. As inflation rises, each dollar buys less than it used to.

Why it matters

• Inflation quietly erodes the purchasing power of cash and low-return investments over time.
• Long-term investors often need some growth-oriented assets (like stocks) just to keep pace with inflation.
• Retirees are especially exposed to inflation risk since a fixed income buys less each year prices rise.

Simple example

• At 3% annual inflation, prices roughly double every 24 years.
• $100 of groceries today might cost roughly $134 in 10 years at 3% average annual inflation.

How beginners use this

Plan in real (after-inflation) terms. Cash alone may lose purchasing power over decades; productive assets sized by your allocation help. More: Inflation & real return basics.

Related terms

• Real Return
• Rate of Return

Learn more

• Inflation & Real Return Basics
• Retirement Planning