Purchasing Power

Purchasing power means how much goods and services money can buy. In simple terms, purchasing power shows the real value of money. Purchasing power is important because prices can change over time. When prices rise, the same amount of money buys less, so purchasing power falls. When prices fall or income rises faster than prices, purchasing power can improve. For example, if $100 could buy more groceries last year than it can buy today, the purchasing power of $100 has decreased. Purchasing power is not the same as income. Income shows how much money someone earns, while purchasing power shows how much that money can actually buy.