Definition
The gradual rise in prices that erodes what a dollar buys. At 3% per year, purchasing power drops by about a quarter in a decade, which is why long-term money needs to grow, not sit.
Why it matters
Inflation is the silent tax on cash: it never shows on a statement, but it compounds relentlessly. Any plan longer than a few years has to out-earn it or lose ground in real terms.
Example
At 3% inflation, groceries that cost $100 today cost about $134 in ten years, and $100 left in a drawer buys only about $74 of today's goods. The same $100 in investments earning 7% grows to $197.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.