What Is Purchasing Power?

Purchasing power is the quantity of goods and services an amount of money can buy. When prices rise, the same money buys less, so inflation lowers purchasing power. The inflation calculator shows the future purchasing power of an amount in today’s prices: it divides the amount by the price growth factor.

Where it appears in the formulas

purchasing power = amount / (1 + r)^t, where r is the annual inflation rate as a decimal and t the number of years. At 30% inflation a year, 1,000 TRY buys after one year what 769.23 TRY buys today.

Purchasing power and real return

Savings keep their purchasing power only if the return covers inflation. The return after inflation is called the real return.