JagInsights › Glossary › Inflation
What is inflation?
Inflation is a rise in the general level of prices. Why a savings rate that looks fine can still lose purchasing power.
Inflation is when the same basket of goods and services costs more dollars than it did. Your paycheck number can stay the same while the groceries it buys shrink.
Worked example
Cash earning 0.01 percent while prices rise 3 percent is losing purchasing power. The account balance can go up a few cents and still buy less. That is why a savings APY is compared with inflation, not only with zero.
Why it matters
A budget that never updates prices will fail even if your habits stay the same. Rent and insurance are the usual first movers.
Questions people ask
Is inflation the same as a price going up at one store?
One store can raise a price for its own reasons. Inflation is the broad movement, measured by indexes such as the CPI. The Bureau of Labor Statistics publishes those.
Does inflation mean I should spend everything now?
No. It means cash that sits in a near-zero account loses power, and that a plan needs a place for cash you will need soon and a separate plan for money you will not need soon.
Do wages always keep up?
No. That is why a raise that matches last year's prices is not extra spending money. It is staying even.
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