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.

Quick Answer

Inflation is a sustained increase in the general level of prices of goods and services, which means the purchasing power of money falls — for the same amount you can buy less and less. In Poland it is measured by GUS using the CPI (Consumer Price Index). What you really earn equals the return rate minus inflation, so a 5% deposit against 4% inflation gives only about 1% real profit. With 5% annual inflation, PLN 100,000 kept "under the mattress" is worth only about PLN 61,000 in real terms after 10 years.

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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

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FAQ

How is inflation measured in Poland?

In Poland, inflation is measured by the Central Statistical Office (GUS) using the Consumer Price Index (CPI), which tracks price changes in a defined basket of consumer goods and services. The CPI is published monthly and reflects year-over-year and month-over-month changes. It is the most commonly referenced measure of inflation for households.

What is the NBP inflation target?

The National Bank of Poland (NBP) targets CPI inflation at 2.5%, with a tolerance band of plus or minus 1 percentage point. When inflation deviates significantly from this target, the Monetary Policy Council may adjust interest rates. The target is a long-term anchor, not a guarantee of monthly readings.

What is the real rate of return?

The real rate of return is the nominal return on an investment minus the inflation rate. For example, if a deposit pays 5% and inflation is 4%, your real return is approximately 1%. Real return shows whether your purchasing power actually grew, regardless of headline numbers.

How does inflation affect cash savings?

Cash held in non-interest-bearing accounts loses purchasing power every year that inflation is positive. Over a decade, even moderate inflation can erode a significant portion of real value. This is why financial planning typically accounts for inflation in long-term forecasts.

Are inflation-indexed bonds a hedge against inflation?

Polish retail inflation-indexed bonds (such as COI and EDO) have coupon rates linked to CPI plus a margin in subsequent years. They are designed to preserve purchasing power against official CPI, though tax and reinvestment terms affect the final outcome. They are one of several tools used by households to manage inflation risk.