Purchasing Power — Financial Glossary

Definition: The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy.

What is purchasing power?

Purchasing power is the quantity of goods and services you can buy with a unit of currency. As prices rise due to inflation, your purchasing power decreases — meaning the same dollar buys less over time.

Example

If a gallon of milk cost $3.00 in 2020 and costs $4.00 in 2026, your dollar's purchasing power for milk has decreased by 25%. You need more dollars to buy the same item.

How to protect purchasing power

  • Invest in assets that historically outpace inflation (stocks, real estate)
  • Consider Treasury Inflation-Protected Securities (TIPS)
  • Keep savings in high-yield accounts to at least partially offset inflation

Use our Inflation Calculator to see how inflation erodes your money's purchasing power over time.