Inflation

The loss of purchasing power over time. Today's pound buys less than yesterday's.

Inflation is the rate at which the purchasing power of a currency declines. It's usually measured as the year-over-year change in a basket of consumer prices — the Consumer Price Index, or CPI. A 2% inflation rate means the same goods that cost £100 today will cost £102 next year.

Inflation compounds. A 2% rate sustained for 35 years halves your money's purchasing power. A 7% rate (closer to actual long-term inflation in housing, education, and healthcare) halves it in just 10 years. The official targets sound modest; the cumulative effects are not.

Inflation has a single mechanical cause: more money chasing the same amount of goods. When central banks expand the money supply, prices eventually rise to absorb the new money. Bitcoin's 21 million supply cap removes this lever — no central authority can issue more, so monetary inflation by Bitcoin is impossible by design.

Learn this in our courses

Course topic

Inflation & money

Why prices keep rising and what to do about it. The history of money, the mechanics of inflation, and how Bitcoin breaks the cycle.

Related terms

Glossary

Fiat

Government-issued currency not backed by a physical commodity. The default form of money since 1971.

Glossary

Halving

A pre-programmed event every four years where the Bitcoin issuance rate drops by 50%.

Glossary

Time preference

How much you value the present versus the future. Low time preference = patient. High = impulsive.

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