Inflation

Inflation measures how much more a fixed basket of goods costs than it did a year ago. The Federal Reserve targets 2% annually, measured against a basket that will not match any particular household exactly, which is why official inflation and personal inflation rarely agree.

At 3%, $100 buys about $74 of today's goods a decade from now. A balance earning 0% is not holding still. It is giving up a few percent of its real value every year, and the loss never appears as a line on any statement.

This is why returns are usually quoted in real terms, meaning after inflation. A 5% nominal return in a 5% inflation year leaves purchasing power exactly flat. Promi runs its projections in today's dollars for the same reason.