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published: 19 May 2021
Take a basket of products and look at how the price of that basket has changed over time. The effect is the CPI inflation rate, which is expected to reflect changes in the average citizen’s cost of living. It is not a perfect or even a decent metric, but it is the number of monetary authorities worldwide that use it as a guide. In most cases, inflation is positive. The cost of living is increasing year after year.
Another way to look at it is that the buying power of your cash savings is dwindling with each passing year. That’s probably how you want to think about it because it determines what kind of savings returns, you’ll need to maintain your lifestyle over time.