Inflation & purchasing power

Inflation is a sustained rise in the general level of prices, which means each unit of money buys a little less over time. The gap between how much money you have and what it can actually buy is the difference between nominal value (the face amount) and real value (its purchasing power). A balance can grow in nominal terms while its real value shrinks if prices rise faster — which is why inflation is often called a quiet tax on cash left sitting idle. A quick estimate, the rule of 70, divides 70 by the inflation rate to find how many years prices take to double. To come out ahead, savings have to earn a return above the inflation rate; a lower return still loses value in real terms.