How does inflation typically affect purchasing power?

Inflation is the rate at which the general level of prices for goods and services rises, leading to a decrease in the purchasing power of money. When inflation occurs, the same amount of money buys fewer goods and services than before, meaning that consumers need to spend more to acquire the same items they were able to purchase for less in the past.

As prices rise due to inflation, wages and income often do not increase at the same rate, which further erodes consumers’ ability to buy products. This dynamic inherently reduces the value of money over time, thereby decreasing purchasing power.

While there may be occasional exceptions based on individual products or unique economic conditions, overall, the consistent trend with inflation is a reduction in purchasing power. This understanding is critical for personal finance management, as it underscores the importance of considering inflation when planning for future expenses and savings.