Inflation

If your salary increases by less than the inflation rate, your real income (purchasing power) is decreasing. When negotiating raises or evaluating job offers, consider whether the increase keeps pace with or exceeds inflation.

Investing in assets that historically outpace inflation (stocks, real estate, TIPS) can protect your purchasing power. Keeping large amounts in low-interest savings accounts means your money loses value over time. Use our investment calculator to model growth against inflation.

Inflation can be caused by demand-pull factors (too much money chasing too few goods), cost-push factors (rising production costs passed to consumers), or monetary factors (increases in money supply). Supply chain disruptions, energy price shocks, and fiscal policy can all contribute to inflationary pressure.

Central banks control inflation primarily through interest rate policy. Raising interest rates makes borrowing more expensive, reducing spending and cooling the economy. Quantitative tightening (reducing money supply) is another tool. The Federal Reserve targets 2% annual inflation as measured by the PCE index.

Nominal return is the raw percentage return on an investment. Real return = Nominal return - Inflation rate. If your investment returns 7% and inflation is 3%, your real return is approximately 4%. Always consider real returns when evaluating long-term investment performance.