What is inflation?
Pay rises with prices, but a mortgage payment can stay fixed.
What is inflation? It is a general rise in prices, so a fixed sum of money buys less over time.
Soraya’s pay rises with prices. How has her mortgage’s share of her pay changed after 30 years?
- Monthly mortgage
- €1,873Fixed for 30 years
- Her monthly pay
- +2.5% a yearRises with prices
A larger share than at the start
Her pay rises while the mortgage payment stays fixed. The payment takes a smaller share of her pay, not a larger one.
A smaller share than at the start
The payment stays at €1,873. Her pay grows about 2.1 times, so the payment takes a smaller share of it.
A fixed mortgage payment takes less of pay that rises with prices.
A fixed sum loses purchasing power as prices rise. Inflation alone does not ensure higher pay.
The same share as at the start
A fixed payment takes a changing share of pay that rises. Here, her pay rises and the payment takes less of it.
Inflation and purchasing power
Who is behind it
How a lesson is made
Every number in the lessons is either calculated or taken from a dated source. A lesson opens only after a person has reviewed it, and any change is reviewed again.
We teach you about money, but we never tell you what to buy. We don't sell investments or earn anything from your choices.
Sources
- IMF: Inflation and purchasing powerA general rise in prices reduces what a fixed sum can buy. Fixed payments and incomes are affected differently. Wages do not necessarily rise with prices.
- ECB: The euro area inflation targetThe European Central Bank targets 2% annual inflation in the euro area over the medium term. A target does not describe the rate actually recorded.