Purchasing power
Also called: buying power
How much a sum of money can actually buy. Inflation reduces it even when the number of rupees stays the same.
Purchasing power measures money by what it buys rather than by its face value. When prices rise, each rupee buys less, so the purchasing power of savings falls unless they earn at least as much as inflation.
Comparing amounts "in today's rupees" means adjusting future amounts for inflation so that they show purchasing power.
Example
At 5% inflation, ₹1,00,000 kept as cash for ten years buys about what ₹61,391 buys today.
Learn more in these lessons
- Saving, investing and inflationWhat is the difference between saving and investing?
- Nominal and real returnsWhat is a real return after inflation?
Related terms
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