Glossary Finance

Inflation

Inflation is the general rise in prices over time, which reduces what each unit of money can buy.

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In more detail

It is usually measured as the yearly change in a consumer price index. At 3% a year, prices double in about 24 years (Rule of 72), so cash loses purchasing power. A "real" return is the nominal return minus inflation, which is why savings earning less than inflation shrink in real terms.

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See also

  • Glossary Compound interest
    Compound interest is interest calculated on the original amount plus all the interest already added, so growth builds on itself.
  • Glossary Return on investment (ROI)
    Return on investment (ROI) is the gain or loss on an investment as a percentage of what was invested.
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