Inflation impacts consumer purchasing power by decreasing the value of money over time. As prices for goods and services rise, the same amount of money buys less, meaning consumers can afford fewer items than before.
🔍 How It Works:
If inflation is 2%, something that cost $100 last year now costs $102.
If your income doesn't rise at the same rate as inflation, you effectively become poorer, because your money doesn't stretch as far.
📉 Key Impacts on Consumers:
Reduced Real Income:
- If wages stay flat while prices rise, people lose purchasing power.
Higher Cost of Living:
- Essentials like food, housing, and transportation become more expensive, affecting especially low- and middle-income households.
Savings Lose Value:
- Money saved without interest or inflation protection loses value over time.
- Shift in Spending Habits:
- Consumers may cut back on non-essential spending or seek cheaper alternatives.
✅ In Summary:
- Inflation erodes purchasing power, meaning each dollar buys less. This impacts how much consumers can afford, especially if wages don't keep pace with rising prices.
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