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Investing

What is inflation?

The meaning

The slow, steady rise in the price of everyday things over time. A bag of groceries that costs $100 today might cost $110 in a few years. Inflation is why leaving all your money in a regular savings account long-term isn’t a great strategy. Your money just sits there while everything around it gets more expensive. Investing is largely about making sure your money grows faster than prices do.

Example
Today$100
In 10 years~$134
The same grocery run, ten years later, at 3% inflation.
Walk through the numbers

At 3% inflation, a $100 grocery run costs about $134 in ten years. Money sitting in cash earning nothing buys about a quarter less over that time.

Why it matters

Inflation is the reason to invest at all. Your money needs to grow faster than prices just to keep its buying power.

Read: What Is Inflation? →

Related terms

Interest on savingsWhat a bank or borrower pays you for using your money.High-yield savings accountA savings account that pays a higher interest rate than a typical bank account.CompoundingEarning returns on your past returns, so growth speeds up over time.RecessionA broad slowdown in the economy, usually with job losses and less spending.

See all 34 terms · Read the full glossary

For education only and not personalized investment advice. Examples are hypothetical illustrations, not a prediction or a promise of results. All investing involves risk, including the possible loss of principal.