Purchasing Power

Purchasing power is how much a given amount actually buys. The number in your account can stay the same while purchasing power falls as prices rise.

This is why inflation is a quiet loss. A million ten years ago and a million today are the same figure but buy considerably less — value erodes invisibly.

Calling cash and deposits safe means nominally safe. The amount does not shrink, but the purchasing power does, and a deposit paying less than inflation is a real loss.

So long-term money needs assets capable of outpacing prices — equities, property, inflation-linked bonds and similar holdings that move with the price level.

Wages deserve the same treatment. A 3% raise against 4% inflation is a cut in real terms. Only reading in purchasing power, not nominal figures, shows the actual position. It also helps to know that prices rise unevenly across categories. If the things you buy most rise faster than average, your felt purchasing power falls more than the index suggests.