Inflation explained simply: Why your money is worth less every year

100 euros today buy less than 100 euros ten years ago. This quiet loss of value has a name: inflation - and it is more powerful than most people think.

What inflation actually is

Inflation means that prices rise on average and thus the purchasing power of your money decreases. Not every product becomes more expensive, and some even become cheaper - but the shopping basket in everyday life costs more every year.

Where it comes from

• More demand than supply: If everyone wants the same thing, the prices rise.
• Higher costs: More expensive energy or wages are reflected in the prices.
• More money in circulation: If a lot of money is printed, every note loses value Value.

Inflation is a tax that no one decides on - and that everyone still pays.

Why savings account money is shrinking

If your money is in the account with zero or almost zero percent interest while prices rise by three percent, you are actually losing three percent per year. It feels safe because the number stays the same - but your purchasing power is crumbling in the background.

How to protect yourself

Material assets beat cash: broadly diversified stocks, real estate or investments whose value grows with the prices. A salary negotiation is also protection against inflation - if you don't demand compensation, you tacitly accept a cut. A small nest egg belongs in the account, but long-term assets should work, not sit there.

Why wages and prices chase each other

If prices rise, employees demand higher wages in order to keep up. Higher wages, in turn, increase companies' costs, which then pass them on to prices. This can create a spiral in which both swing each other up. That's exactly why central banks monitor inflation so closely and raise interest rates when necessary - more expensive money slows down demand and prices.

For you as an individual, this means: Don't plan your finances based on today's figures, but rather with an eye on the creeping devaluation of money. A salary increase that is below the inflation rate is actually a cut - even if there is a larger number in the account. Those who understand this negotiate more confidently and make smarter decisions when it comes to long-term contracts.

A little inflation is even considered healthy for an economy. Things get dangerous at the extremes - very high inflation, which destroys savings, or falling prices, which paralyze growth. If you understand the basic principle, you will make smarter decisions about your account, salary and investments. Ultimately, inflation is not a reason to panic, but rather a fact that has to be taken into account - as natural as the weather. Those who put their money to work instead of letting it sit idle not only keep up, but also build real wealth over the years. Understanding is half the battle here.