Inflation and the purchasing power of your money
Inflation describes a general increase in prices. When income stays the same and the cost of your purchases rises, the same amount of money buys less. Not every price changes at the same pace.
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One price is not the whole economy
A rise in the price of one item does not measure overall inflation. Price indices combine many goods and services with different weights. Your household can experience a different change because its spending mix differs from the reference basket.
Keep the comparison consistent
Compare the same quantity and quality. A smaller package at the same price raises the unit cost. A change of product should be recorded separately rather than attributed entirely to inflation.
Work through a comparable basket
Suppose the same basket costs €100 initially and €104 later. Its price has risen by 4%. A fixed €100 now buys about 96.15% of the original basket. These are illustrative figures, not a current inflation rate.
Separate nominal and real changes
If a balance rises by 3% while the reference prices rise by 4%, its purchasing power changes by 1.03 / 1.04 − 1, approximately −0.96%, before taxes and other costs. Subtracting the two rates gives a useful approximation but not the exact result.
Update the plan without forecasting markets
Review the purchases that changed, the amount needed for a goal and the assumptions behind the plan. A past inflation rate does not establish the next rate, nor does it prove which investment will preserve purchasing power.
Distinguish price and quantity
Keep quantity and price in separate columns. This helps explain whether a higher bill comes from higher prices, greater consumption or a change in quality. A general percentage alone cannot explain all household changes.
Frequently asked questions
Does lower inflation mean falling prices?
Not necessarily. Prices may still be rising, just more slowly.
Will my budget rise by the official rate?
Not necessarily. Your quantities, basket and choices can differ from the average.
Conclusion
Use price indices for context and your own transactions for planning. Keep observed prices separate from forecasts and from investment recommendations.