How Inflation Actually Affects Your Money

Core Insights - Inflation is defined as the increase in the cost of goods and services over time, typically expressed as a yearly percentage, with the current inflation rate at 3.0% as of November 2025, up from 2.3% at the beginning of the year [3] Positive Effects of Inflation - Higher interest rates on savings accounts can benefit short-term investors, as increasing inflation often leads the Federal Reserve to raise interest rates, prompting banks to offer better returns on savings deposits [5] - Rising inflation can correlate with higher wages, as companies may need to offer better salaries to attract new hires and retain existing employees, potentially leading to pay raises for workers [7] Negative Effects of Inflation - Higher inflation results in increased borrowing costs, as the Federal Reserve's interest rate hikes make it more expensive for banks to borrow money, which is then passed on to individual and business borrowers [6]