Inflation — what it is and how it affects savings?

Definition

Inflation is a process of sustained increase in the general level of prices of goods and services in the economy. In practice, it means that for the same amount of money you can buy less and less — the purchasing power of money decreases.

In Poland, inflation is measured by the Central Statistical Office (GUS) using the CPI (Consumer Price Index), which tracks price changes in a basket of consumer goods and services.

How does inflation affect savings?

Inflation is the "silent thief" of savings. Money kept in an uninterested account loses value each year.

Example: With 5% annual inflation, PLN 100,000 kept "under the mattress" after 10 years has a real purchasing power of only ~PLN 61,000.

Real rate of return

What you really earn on investments is the return rate minus inflation:

• Deposit gives 5%, inflation is 4% → real profit is ~1%
• Deposit gives 3%, inflation is 5% → real loss is ~2%

Types of inflation

• Demand-pull — too much money "chasing" too few goods
• Cost-push — rising production costs (energy, raw materials) transferred to prices
• Core — inflation after excluding food and energy prices (less volatile)

How to protect savings against inflation?

1. Inflation-indexed bonds (COI, EDO) — interest rates rise with inflation
2. Stocks and ETFs — historically beat inflation in the long term
3. Real estate — rents and property values rise with inflation
4. Gold — traditional hedge against currency devaluation
5. IKE/IKZE — additional protection through elimination of Belka tax

Inflation and FIRE

When planning financial independence, you must include inflation in your calculations. The 4% rule was designed with inflation in mind — it assumes annual increases in withdrawals by the CPI index.

How Freenance can help

Freenance takes inflation into account in Financial Freedom Runway calculations and FIRE forecasts. This way you see how much you really need — not in today's PLN, but accounting for future loss of purchasing power.

👉 Calculate your FIRE goal with inflation included — freenance.io