Inflation is the pace at which the general level of prices rises. It matters to investors because it sets the bar every return has to clear: if savings earn 8% while prices rise 20%, the saver is losing purchasing power even though the balance is growing.
Key takeaways
- What counts is the real return — the nominal return minus inflation.
- Central banks typically respond to high inflation by raising interest rates.
- Cash and fixed-rate savings lose the most in real terms when inflation is high.
