What Causes Inflation and Why It’s Worse Than You Think
Most people think of inflation as “prices going up.” But that’s only half the story. Inflation is the silent thief in your wallet - the erosion of your money’s value, year after year, whether you spend it or not.
It’s a tax you never voted for. And it’s the reason your money buys less food, less fuel and less freedom with every passing year.
The Numbers They Don’t Want You to Dwell On
United Kingdom: Inflation in July 2025 stood at 3.8%, after peaking above 11% in 2022.
United States: Around 3%, down from the 9% peak in 2022.
Eurozone: About 2.3%, near the ECB’s “target.”
On the surface, these numbers look manageable. But here’s what no one tells you: even “low” inflation, when compounded, devastates purchasing power.
At 3.8% inflation, £10,000 today turns into the equivalent of £6,500 in a decade. You didn’t spend it. You didn’t lose it. It simply evaporated in real terms.
Why Governments Love Inflation (and You Lose)
Inflation is not an accident — it’s a feature. Governments loaded up on historic levels of debt after COVID and energy crises. How do they pay it back?
They don’t. They let inflation quietly reduce the burden.
Every year of 3–5% inflation makes the real value of government debt smaller.
Savers, pensioners, and workers foot the bill because their money buys less.
In short: inflation is the most efficient debt-reduction scheme in history.
The Wage Illusion
Governments point to wage growth as proof that households are doing better. And yes, in 2024 wages in the UK and US finally grew faster than prices — for the first time since 2021.
But step back:
In the UK, real wages fell for two years straight before that.
In the US, real pay is still 3% below pre-inflation trend.
Across Europe, real purchasing power is only just crawling back.
So while headlines say “wages are up,” the truth is that workers are still poorer than they were five years ago.
Why This Matters to You
If you’re holding large amounts of cash in a savings account, you are guaranteeing a loss. Even at 3% inflation, £100,000 loses £3,000 in value every year.
That’s before taxes. Before fees. Before spending.
Meanwhile:
Pension systems indexed to wages or capped at low COLA adjustments are not keeping up.
Cash-heavy portfolios are bleeding silently.
And future retirees will be shocked when their “guaranteed” benefits buy far less than expected.
What You Can Do About It
You can’t stop inflation. But you can position yourself to beat it.
Reduce idle cash. Keep only what you need for short-term emergencies.
Shift into real assets. Property, dividend-paying stocks, and metals like gold and silver historically outpace inflation.
Diversify income streams. Relying on one job or one pension is the riskiest move in today’s economy.
The wealthy know this. They don’t leave excess money sitting still — they move it into assets that grow faster than inflation eats.
The Bottom Line
Inflation is not going away. Even at “normal” levels, it compounds into devastating losses over time.
Governments win. Savers lose.
Your choice is simple: accept silent theft, or build a plan to protect yourself.
👉 For the step-by-step framework to inflation-proof your wealth, this can be a good place to start.
