What your money actually buys

Nothing is going up

It is natural to read a rising price as the thing becoming more valuable. Usually it is the opposite: the measuring stick is getting shorter. Wages, houses, groceries and share prices are all quoted in a unit that shrinks a few percent a year, so the numbers climb even when nothing about the thing has changed.

At 3% a year, prices roughly double in 24 years. A salary that looks generous at the start of a career buys about half as much by the end of it, with no pay cut ever appearing on a payslip.

Why a raise can still be a pay cut

A 2% raise in a 3% year is a 1% reduction in what you can actually buy. It arrives as good news, it shows up as a bigger number, and it leaves you worse off. Put your own raise in above and watch the real-income line rather than the headline figure.

This is the reason "my salary went up" and "I feel poorer" are not a contradiction. They are measured in different units.

Why cash is not the safe option it looks like

Money held as cash does not stay still, it declines at whatever inflation happens to be. Safety in the sense of "the number will not fall" and safety in the sense of "it will still buy this much" are different properties, and only one of them shows on a bank statement.

How this is calculated

Compounded annually. The future value of a fixed amount is divided by inflation compounded over the period, which gives what it buys in today's money.

What this does not include

It assumes one steady rate, and real inflation is neither steady nor the same for everyone — the rate that matters to you depends on what you actually buy, and rent, food and energy have moved very differently from the headline figure. Use this for the shape of the effect, not as a forecast.