The amount of goods and services that a unit of money can buy. When inflation rises, purchasing power falls because the same dollar buys less than it did before. Purchasing power is important because it affects how much real value you have in savings and income.
If a coffee costs $5 today and you have $100, your purchasing power allows you to buy 20 coffees. If inflation causes the coffee to cost $10 next year but your salary stays at $100, you can now only buy 10 coffees, so your purchasing power has been cut in half.
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