Purchasing Power Loss/Gain

What is 'Purchasing Power Loss/Gain '

Purchasing power loss/gain is 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.

BREAKING DOWN '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. Elder-Ray Index

    A technical indicator developed by Alexander Elder that measures ...
  2. Relative Purchase Power Parity

    An expansion of the purchase power parity theory, which suggests ...
  3. Financial Power Of Attorney

    A financial power of attorney grants a trusted agent the authority ...
  4. Asset Earning Power - AEP

    The earnings generated by a business relative to its asset base. ...
  5. Nominalism

    The principle of keeping the amount of a debt obligation fixed ...
  6. Purchasing System

    A method used by businesses to buy products and/or services. ...
Related Articles
  1. Retirement

    Retiring: Is $1 Million Enough?

    Find out why this magic number has lost some of its lustre as a retirement savings target.
  2. Markets

    Tesla Home Batteries Could Transform Your Electric Bill

    With limited daylight hours, solar power cannot power our homes at night, but Tesla Motors might help solve that problem.
  3. Markets

    Corporate Bonds and the Impact of Inflation Risk

    The impact of inflation risk affecting corporate bond returns can be significant. It may even result in a real loss of purchasing power.
  4. Markets

    The Industry Handbook: The Utilties Industry

    You've probably noticed that the utilities industry is not quite what it used to be. Once considered the quintessential safe widow-and-orphan stocks, electricity companies are undergoing big ...
  5. Retirement

    Inflation: What Is Inflation?

    Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every dollar you own buys ...
  6. Retirement

    Why Inflation Is Still A Threat To Your Retirement

    One reason people tend to underestimate their retirement saving needs is that they fail to properly account for the impact of inflation.
  7. Trading

    Triple Screen Trading System - Part 4

    How can a trader use the Elder-Ray oscillator as the second screen of this system? Find out here.
  8. Personal Finance

    Timeless Ways To Protect Yourself From Inflation

    Inflation is a natural part of modern life - but there are some ways to cover your assets.
  9. Markets

    Do Deflationary Shocks Help Or Hurt The Economy?

    Find out how deflationary shocks can both benefit and hurt consumers and businesses.
  10. Markets

    What Causes Inflation in the United States

    Inflation is the main catalyst behind U.S monetary policy. But what causes this phenomenon of sustained rising prices? Read on to find out.
RELATED FAQS
  1. What is a common strategy traders implement when using the Elder-Ray Index?

    Read about the important buying and selling conditions that are recommended by Dr. Alexander Elder when using his Elder-Ray ... Read Answer >>
  2. What impact does inflation and deflation have on a blue-chip stock value?

    Learn how inflation and deflation affect the value of blue-chip stocks, and why investing in blue chips can stabilize your ... Read Answer >>
  3. What are the nations with the highest PPP (purchasing power parity) with respect ...

    Learn which nations have the highest PPP with respect to the U.S. while reviewing the differences of calculating GDP in market ... Read Answer >>
  4. Why is the Elder-Ray Index important for traders and analysts?

    Learn about the Elder-Ray index, a novel technical oscillator created by Dr. Alexander Elder to assess the buying and selling ... Read Answer >>
  5. What is inflation and how should it affect my investing?

    Inflation, an economic concept, is an economy-wide sustained trend of increasing prices from one year to the next. The rate ... Read Answer >>
  6. How does deflation impact consumers?

    Learn about how deflation affects consumers; they thrive in the short term, but in the long term, deflation can be disastrous ... Read Answer >>
Hot Definitions
  1. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  5. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  6. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
Trading Center