Inflation rate is the general increase in prices year on year. Sometimes, prices can go the other direction which called deflation.
Inflation affects the value of the every dollar. In short, it affects the ability of how much each dollar can buy a certain amount of product yearly.
For instance, if the rate of inflation is 2% and the bank interest is 1%. It means that the value of each dollar deposited today is worth $1.01 next year while inflation will cause the value of a dollar of a product to raise to $1.02. It means you have to spend more to buy the same amount of product.
What a person should logically do is to benchmark their own savings or earnings to increase more than the general increase in inflation. If a person earnings does not beat the inflation, it means they are in fact earning less than the year before even though there is a percent of increase in earnings.
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