Inflation
The rate at which prices rise over time, reducing the purchasing power of money.
Inflation is the rate at which prices increase over time, eroding the purchasing power of money. If inflation is 3% per year, €100 today will only buy as much as €97 bought last year.
Why it matters for investors
Real return = Nominal return − Inflation. If your investment grows 5% but inflation is 3%, your real gain is only 2%.
Cash held in a non-interest-bearing account loses value every year due to inflation.