Inflation is the slow rise in prices across an economy, and its real effect is on purchasing power — how much your money can actually buy. A dollar today does not buy what a dollar bought a decade ago, and that gap compounds year after year.
The rule of thumb: 72 divided by the rate
To see how fast inflation halves your money, divide 72 by the inflation rate. At 6% inflation, purchasing power halves in about 12 years. That means $100,000 sitting in cash would buy roughly what $50,000 buys today after just over a decade.
Why cash is not “safe”
Money in a zero-interest account feels safe because the number does not drop, but its real value quietly bleeds away. If your savings earn 2% while inflation runs at 5%, you are losing 3% of buying power every year even though the balance looks stable.
Staying ahead of it
Assets that historically outpace inflation — diversified stocks, real estate, inflation-linked bonds — help your money grow faster than prices rise. The goal is a real return: your return minus inflation. A 7% return during 4% inflation is really a 3% gain in what you can buy.
Frequently asked questions
Is some inflation good?
Mild, steady inflation is considered healthy for an economy. It is high or unpredictable inflation that causes damage.
How do I calculate real value over time?
Adjust the amount by the cumulative inflation rate for the period, or use an inflation calculator to do it instantly.
Try it yourself
Skip the manual math — use a free tool and get the answer instantly:
Results are general information only and not professional financial, medical, or legal advice.