Purchasing Power Loss/Gain

AAA

DEFINITION of 'Purchasing Power Loss/Gain '

An increase or decrease in how much consumers can buy with a given amount of money. Consumers lose purchasing power when prices increase, and gain purchasing power when prices decrease. Causes of purchasing power loss include government regulations, inflation and natural and man-made disasters. Causes of purchasing power gain include deflation and technological innovation.

INVESTOPEDIA EXPLAINS 'Purchasing Power Loss/Gain '

One official measure of purchasing power is the Consumer Price Index, which shows how the prices of consumer goods and services change over time. As an example of purchasing power gain, if laptop computers cost $1,000 two years ago and today they cost $500, consumers have seen their purchasing power rise. In the absence of inflation, $1,000 will now buy a laptop plus an additional $500 worth of goods.
Retirees must be particularly aware of purchasing power loss, since they are living off of a fixed amount of money. They must make sure that their investments earn a rate of return equal to or greater than the rate of inflation, so that the value of their nest egg does not decrease each year.

RELATED TERMS
  1. Constant Dollar

    An adjusted value of currency used to compare dollar values from ...
  2. Inflation

    The rate at which the general level of prices for goods and services ...
  3. Personal Income

    Total compensation received by an individual. Personal income ...
  4. Purchasing Power Parity - PPP

    An economic theory that estimates the amount of adjustment needed ...
  5. Purchasing Power

    1. The value of a currency expressed in terms of the amount of ...
  6. Big Mac PPP

    A survey done by The Economist that determines what a country's ...
Related Articles
  1. Fundamental Analysis

    Hamburger Economics: The Big Mac Index

  2. Professionals

    Which investment would be most suitable ...

  3. Investing

    What is inflation and how should it ...

  4. Investing

    When looking at my online broker account, ...

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center