Author
BetterProduct Editorial Team
What inflation is, how it erodes purchasing power, and strategies to protect your wealth.
Inflation is the gradual increase in prices over time, which means your money buys less in the future than it does today. At 3% annual inflation, something that costs $100 today will cost $134 in 10 years and $181 in 20 years. Understanding inflation is essential for financial planning — it affects everything from your savings strategy to your retirement projections.
BetterProduct Editorial Team
Checked against standard finance formulas and representative planning scenarios.
March 2026
Budgeting, comparisons, and what-if planning.
English public edition reviewed against the same source formulas used in maintenance.
Inflation is caused by too much money chasing too few goods. Demand-pull inflation occurs when consumer demand exceeds supply. Cost-push inflation happens when production costs rise (like oil prices). Built-in inflation occurs when workers demand higher wages to keep up with rising prices, creating a wage-price spiral. Central banks manage inflation through interest rate policy.
The Consumer Price Index (CPI) tracks the price of a basket of common goods and services. The Federal Reserve targets 2% annual inflation as healthy for the economy. Core inflation excludes volatile food and energy prices for a clearer trend. The Personal Consumption Expenditures (PCE) index is the Fed's preferred measure.
If your savings account earns 1% interest but inflation is 3%, your real return is -2% — you're losing purchasing power. This is why keeping large amounts in low-yield accounts is risky long-term. The real return on any investment is the nominal return minus the inflation rate.
Stocks have historically outpaced inflation over long periods, making them the best inflation hedge for long-term investors. Real estate tends to appreciate with inflation. Treasury Inflation-Protected Securities (TIPS) are government bonds that adjust with inflation. I-Bonds offer inflation-adjusted returns with government backing. Avoid holding large amounts in cash long-term.