How much your money can actually buy, which shrinks as prices rise even if your income doesn’t.
Purchasing power is the amount of goods and services a given sum of money can actually buy. It erodes over time as inflation pushes prices up, even if the number of dollars someone has stays exactly the same, which is why $100 today buys noticeably less than $100 did a decade ago. Wages, savings, and pensions all lose real value if they don't grow at least as fast as inflation, which is part of why cost-of-living increases and inflation-adjusted pay raises matter so much to household budgets.
Part of the Open Bell Glossary — plain-English explanations of the terms that come up on the show. Browse every term.