What Is Inflation? Simple Explanation and How to Protect Your Money
Prices rise, and the same amount of money buys less and less. That's inflation. Here's how it works and why money kept “under the mattress” quietly loses value.
What it is
Inflation is the general rise in prices across the economy. If inflation is 8% a year, goods that cost 100,000 ₽ (rubles) will cost about 108,000 ₽ a year later. It's usually measured by the consumer price index — the cost of a basket of typical purchases.
Real return
What matters isn't the return itself, but the return minus inflation.
| Investment | Return | Inflation | Real |
|---|---|---|---|
| Cash | 0% | 8% | −8% |
| Deposit | 10% | 8% | ≈ +2% |
| Deposit | 6% | 8% | ≈ −2% |
How people protect themselves
- They keep their emergency fund in a deposit or money market funds rather than in cash.
- For the long term — stocks and bonds: over time, companies raise prices along with inflation.
- They split money across different assets — diversification.
How central banks fight inflation — in the article on the Fed rate.
Aspiro Invest — a medium-term portfolio: what to hold, when to review it and where the protective levels are.
- Inflation is rising prices, and money loses purchasing power.
- Calculate real return: income minus inflation.
- Cash always loses to inflation.
Frequently asked questions
Why is inflation different for everyone?
The official rate is calculated from a general basket. If you buy more of the things that get pricier faster, your personal inflation is higher.
Is inflation always bad?
Low, predictable inflation is considered normal. High and erratic inflation is dangerous — it makes planning hard.
What is deflation?
The opposite process: a general drop in prices. It sounds nice, but it often comes with an economic downturn.
Free Aspiro Academy
26 lessons on investing and trading from scratch: videos, practice in the Aspiro apps, quizzes and a certificate. Lesson texts are open without sign-up.