How does inflation affect a consumer's purchasing power?

Inflation affects a consumer's purchasing power by raising the prices of goods and services that consumers buy. When inflation occurs, the general level of prices in the economy rises, meaning consumers have to spend more money to purchase the same goods and services they previously bought for less. This erodes the value of money over time, leading to a decrease in purchasing power.

For example, if an item costs $100 today due to a certain rate of inflation, in the future, that same item may cost $105. This means that consumers will need to earn or allocate more money to maintain the same level of consumption they had before inflation set in. Consequently, as prices increase, the amount of goods and services consumers can buy with a fixed income diminishes, demonstrating a clear detrimental effect of inflation on purchasing power.