Inflation: the quiet force that shrinks what money can buy
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Key takeaways
Inflation is the rate at which prices for goods and services rise over time, reducing the buying power of a fixed amount of money.
It’s measured in the U.S. primarily through the Consumer Price Index, published monthly by the Bureau of Labor Statistics.
Inflation affects savings, wages, and international transfers differently, and rarely at the same pace across countries.
Money sitting in a low-interest account can lose real value over time if inflation outpaces the interest earned.
Understanding a recipient’s local inflation rate helps in judging whether a regular transfer still delivers the same real support.
Inflation is the quiet force that reduces what a fixed amount of money can actually buy over time. Here’s how it works and why it matters for transfers abroad.
What is inflation?
Inflation is the rate at which the general level of prices for goods and services rises over time, meaning a fixed amount of money buys progressively less as inflation continues. According to the Bureau of Labor Statistics(opens in new window), the Consumer Price Index is the primary tool used to measure this change in the United States, tracking the average change in prices paid by consumers for a broad basket of everyday goods and services.
What causes inflation
Inflation typically results from some combination of rising demand outpacing available supply, increasing production costs that get passed on to consumers, and changes in the overall money supply within an economy. Different factors can dominate in different periods, a temporary supply shortage can drive a short-term price spike, while a sustained increase in the money supply relative to economic growth tends to produce more persistent, longer-term inflation. Central banks, including the Federal Reserve in the U.S., actively try to manage inflation, generally aiming for a low, stable rate rather than either high inflation or outright deflation, both of which create their own economic problems.
How inflation erodes savings if left unaddressed
Money sitting in an account earning little to no interest effectively loses real value over time whenever inflation outpaces that interest rate, since the same nominal amount buys progressively less even though the number in the account hasn’t changed. This is one of the more important, if underappreciated, reasons financial guidance generally encourages moving savings beyond a very basic, low-interest account once there’s more than a modest emergency reserve, since letting savings sit entirely uninvested during a period of meaningful inflation amounts to a slow, quiet loss of real value.
Inflation and your international transfers
Inflation in a recipient’s country directly affects how far a transfer actually stretches, independent of anything happening with the sender’s own income or the exchange rate specifically.
For a real-world, high-inflation case study, see this look at Turkey’s inflation rate and what it means for consumers(opens in new window).
Quick calculation
Imagine a recipient’s country experiences 10 percent inflation over the course of a year, and an illustrative 400 units of currency have been sent each month without adjustment. By the end of that year, the 400-unit transfer buys roughly what 364 units would have bought at the start of the year, a meaningful decline in real support even though the actual transfer amount never changed. Increasing the transfer to approximately 440 units would restore the same real buying power the recipient had a year earlier, illustrating why checking in on local inflation periodically matters for keeping support genuinely consistent in real terms, not just in the nominal number being sent.
Why inflation rates differ so much between countries
Inflation isn’t a single global rate; it varies considerably by country based on each economy’s specific conditions, monetary policy, and external pressures like global commodity prices or currency stability. Some countries maintain low, stable inflation for extended periods, while others experience considerably higher or more volatile inflation, sometimes reaching levels high enough to be commonly described as hyperinflation. This variation is exactly why a general awareness of inflation as a concept isn’t enough on its own, checking the specific, current inflation situation in a recipient’s particular country gives a far more accurate and useful picture than assuming conditions are similar to a sender’s own country’s experience.
Wage growth versus inflation
Whether inflation actually erodes standard of living depends heavily on whether wages are rising at a comparable pace. If income grows faster than inflation, real gains in purchasing power result despite rising prices. If income grows more slowly than inflation, or stays flat, real purchasing power declines even if the nominal paycheck number looks unchanged or even slightly higher. Comparing income growth against the relevant inflation rate periodically, rather than focusing on either number in isolation, gives a much more accurate sense of whether an actual financial position is improving or quietly slipping behind.
Inflation’s uneven effect across income levels
Inflation doesn’t affect every household equally, since lower-income households often spend a larger share of their budget on necessities like food and housing, categories that have sometimes risen faster than the broader average inflation figure. This means a general inflation statistic can understate the real impact felt by a household whose spending is concentrated in these faster-rising categories, worth keeping in mind when interpreting a headline inflation number against a specific budget.
Common questions about inflation
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Is some inflation normal and healthy?
Yes. Most economists and central banks consider a low, stable rate of inflation, often targeted around two percent annually in many developed economies, to be a normal and even healthy feature of a growing economy, distinct from the much higher, more disruptive inflation that creates genuine hardship.
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How can I protect my savings from inflation?
Keeping a portion of savings in an account or investment that earns a return exceeding the inflation rate helps preserve real value over time, though the right specific approach depends on timeline and risk tolerance, and a financial professional can help tailor this to a specific situation.
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How do I find out the current inflation rate in my recipient’s country?
Many countries publish their own consumer price index or equivalent inflation figures through a national statistics agency, and searching for a recipient’s specific country’s current inflation rate gives a more relevant, current figure than relying on U.S. inflation data, which reflects an entirely different economy.
In Summary
Inflation is a constant, quiet force shaping both personal savings and the real value of what’s sent abroad, and understanding it, on both ends of a transfer, helps in planning more accurately and adjusting when needed. See how much you can save on your next transfer while accounting for how inflation is shaping a recipient’s real, everyday costs.
This publication is provided for general information purposes only and is not intended to cover all aspects of the topics discussed herein. This publication is not a substitute for seeking advice from an applicable specialist or professional. The content in this publication does not constitute legal, tax, or other professional advice from Remitly or any of its affiliates and should not be relied upon as such. While we strive to keep our posts up to date and accurate, we cannot represent, warrant, or otherwise guarantee that the content is accurate, complete, or up to date.