Your balance rises, yet the same shopping list seems harder to afford. There is no contradiction: the number of currency units and the goods those units can purchase are different measures.
The Bank of England’s explanation of inflation describes changes in prices over time. The example below uses invented figures to make the purchasing-power question concrete; it is not a report of current inflation.
Hold the basket still
Imagine a fixed basket of goods costs 100 units in the first year and 105 in the next. The basket’s price has risen by 5%. If your money also rises from 100 to 105, it buys the same basket in this simplified example.
If your money rises only to 103, the balance is larger but insufficient for that unchanged basket. Both statements can be true at once.
Check what an inflation figure represents
A published index summarises a defined collection of prices using a particular method. Your own spending pattern may differ. Do not treat the price change of one product as the inflation rate for everything, or assume a national average describes every household identically.
For a personal comparison, keep quantities and product definitions consistent. Buying more items or switching quality levels changes the question.
Read financial projections with the distinction in mind
When a book shows a future sum, ask whether it is expressed in future money amounts or adjusted for purchasing power. Check the inflation assumption and the period used.
A projection that omits inflation is not automatically useless, but it answers a narrower question. You should know which question before comparing it with another projection.
Avoid turning one example into a product recommendation
This arithmetic does not establish which investment or savings option suits you. Costs, risk, access and personal circumstances still matter. Pair the exercise with our compounding example to separate how a balance grows from what that balance may eventually buy.