The number stays still while its value moves
Inflation does not change the amount in your account; it changes what that amount buys. Money you keep untouched loses purchasing power quietly, year after year, without anything visible happening to the balance.
Two ways to look at the same thing
Forwards: what will something that costs this much today cost in ten years. Backwards: a sum promised in ten years, what is it really worth now. The second is the one people skip, and it is what makes distant amounts look larger than they are.
A nominal return is not a real return
Earning 5% while prices rise 3% leaves you roughly 2% better off in real terms. Any return below the inflation rate is a loss of purchasing power, however positive the number looks. That is the comparison worth making before deciding where money sits.
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Frequently asked questions
Q. What inflation rate should I use?
For a rough look ahead, many central banks target around 2%, and long-run historical averages in most developed economies sit between 2% and 3%. Your own experience depends on what you actually buy, which is why housing or education costs often feel far higher than the headline figure.
Q. Why does the effect look so large over thirty years?
Because it compounds. At 3%, prices roughly double in 24 years — the yearly change is small and unremarkable, and that is exactly what makes it easy to underestimate over a working lifetime.
Q. Does this predict actual prices?
No. It applies one constant rate you choose. Real inflation moves around, varies by category, and no single number describes everyone’s cost of living.