Two ways to read inflation
Inflation can be expressed as prices rising or as money weakening; they are the same fact seen from two sides. If a basket costing 100 today costs 179 in ten years at 6%, then 100 held in cash for ten years buys what 56 buys today.
The second framing is the useful one for savers. Cash held at 3% during 6% inflation is losing about 3% of its real value every year, even though the balance is going up.
Why your personal inflation rate differs
Headline inflation measures a basket meant to represent average household spending. Your own rate depends on what you actually buy. Education, healthcare and housing have consistently outpaced the general index in most economies, while consumer electronics have fallen in real terms for decades.
A household spending heavily on school fees and rent experiences meaningfully higher inflation than one spending on gadgets and travel, even in the same city in the same year.
The rule of 70
Dividing 70 by an inflation rate gives roughly the number of years for prices to double. At 2% that is 35 years; at 7%, ten years; at 10%, seven. It is the same compounding arithmetic behind the rule of 72 for investment returns.
This is the fastest way to sanity-check a long-range plan. If your retirement is 30 years away and inflation averages 6%, prices will roughly double twice — costs at the end are around four times today's.
Beating inflation, not just tracking it
A savings account paying less than the inflation rate loses purchasing power every year, however comfortable the growing balance looks. The real return is the nominal rate minus inflation, and it is frequently negative on cash.
This is the core argument for holding growth assets over long horizons: not that they are safe, but that the apparently safe option carries a guaranteed slow loss when inflation is running.
Frequently asked questions
What inflation rate should I use? +
Long-run averages in developed economies sit around 2–3%; many emerging economies run 5–7%. Your personal rate depends on what you buy — education and healthcare typically inflate faster than the headline index.
What causes inflation? +
Broadly, demand outpacing supply, rising input costs such as energy and wages, or growth in the money supply. Real episodes usually involve several at once.
Is deflation better? +
No. Falling prices encourage people to delay purchases, which reduces demand and can entrench a downturn. Most central banks target a small positive rate, typically around 2%, for this reason.