Purchasing power

Purchasing power is the amount of goods and services that one unit of currency can buy. Over time, purchasing power tends to decline as inflation reduces the value of a unit of currency. Purchasing power can be evaluated by reviewing changes in the Consumer Price Index (CPI) over time. As the CPI increases, this indicates that the purchasing power of the U.S. dollar is declining. Thus, $1 earned ten years ago could buy more than $1 earned today.