Inflation: the invisible tax everyone pays
You stash €10,000 under a mattress. A year later, you still have €10,000 — but it buys fewer goods. That's inflation. Even at the ECB's 2% target, €10,000 loses a third of its purchasing power over 20 years. At 2022's 10% peak, it dropped to €9,000 in twelve months. Three levels of defense: savings account (keep up), currency diversification (stable), investing (historically beats). Not investing is also a decision — guaranteed loss.
If you stashed €10,000 under a mattress one year ago — today you still have €10,000. It seems.
But if you take those €10,000 to a store today, you'll buy fewer goods than you'd have bought a year ago. The difference — roughly €300–800 — "vanished." Nobody stole it. That's inflation.
And it works every single day, regardless of whether you think about it.
What inflation is, explained simply
Imagine a country of 100 people. Each has €100. Total money in the economy: €10,000. The economy produces exactly 10,000 loaves of bread.
Market price: €1 per loaf.
Now the government prints another €10,000 and gives everyone an extra €100. Now everyone has €200, but there are still only 10,000 loaves.
What happens? The price of bread rises to €2. Because there's twice as much money but the same amount of bread.
That's a simplified model, but the principle holds: when the money supply grows faster than goods and services, money loses value. That's inflation.
In the real economy, inflation happens for multiple reasons at once: monetary policy, production cost increases, currency exchange rates, external shocks. But for you as a consumer, the result is the same: next year, the same money buys less.
Real numbers for the EU
Average inflation in the eurozone during 2022–2023 peaked around 10% — unusually high. Historically the average is 2–3%, and the European Central Bank targets 2%.
Even at the target rate of 2%, here's what happens to €10,000 sitting still:
- After 1 year: ~€9,804 purchasing power
- After 5 years: ~€9,057
- After 10 years: ~€8,203
- After 20 years: ~€6,730
Even at "low" 2% inflation, you lose about a third of your purchasing power over 20 years. At the 10% that Europe saw in 2022, €10,000 dropped to ~€9,000 in twelve months.
For comparison: an average EU savings account in 2024–25 paid 2–4% interest. That's keeping up with inflation, barely. Sometimes losing slowly.
Historical average stock market return (10+ years, broad index): 6–8% above inflation. That's why the wealthy get wealthier: their assets work against inflation automatically.
Where inflation hits hardest
Not all prices rise equally. Some categories get hammered:
— Groceries. Basic food basket rises faster than average inflation. — Utilities. Partly regulated but trending up. — Education. Private courses, universities sometimes jump 5–10% per year. — Electronics. Especially imported, tied to exchange rates. — Healthcare (where not covered). Especially medication.
And some areas where prices "freeze":
— Salaries. Typically lag inflation. Raises happen once a year, if at all. — Fixed-rate deposits. Rate locked in — inflation rose — you lost. — Long-term contracts without indexation.
Bottom line: inflation isn't just "a number on the news." It's a redistribution of purchasing power from people whose money sits still to people whose money works.
How to defend yourself — three levels
Level 1: Minimum — a savings account.
Simplest step. Open a high-yield savings account at 3–4% annually. Money doesn't "grow" but doesn't melt either. For an emergency fund, this is enough. For long-term savings, not — you're preserving, not earning.
Level 2: Currency diversification.
Keep part in EUR, part in USD or GBP. Protects against sharp currency swings. If EUR drops — USD compensates. If USD drops (rarer) — EUR part holds. Important: currency exchange has fees and spread, so this strategy makes sense for amounts above €1,000.
Level 3: Investing in assets.
Stocks, bonds, index funds (ETFs). Requires basic knowledge and a brokerage account. Long-term (10+ years) historically beats inflation. Short-term — can drop 30–40% in a crisis.
Important disclaimer: investments carry risk. Monetika doesn't tell you "where to invest" — we teach how it works. Decisions are yours.
The inertia trap
The biggest danger of inflation isn't its percentage. It's that 90% of people ignore its existence.
"I'll figure it out later." "Not the right time." "When things settle down, I'll start."
Problem: inflation works every day. While you wait for the "right moment," it silently eats your purchasing power. In 5 years you open your account and are surprised — "I didn't do anything and I can buy less now." Correct. You didn't do anything. Inflation did.
The bottom line
Not investing is also a financial decision. And it's a guaranteed loss.
The question isn't "should I defend my money from inflation." It's: "with what method — minimum (savings account), medium (currency), or advanced (investments)?"
Any answer beats "none."
Want to understand how to protect your money from inflation?
Monetika has a free course "Investing for Beginners" — we explain what stocks, bonds, and ETFs are, and how not to fall for hype. 30 minutes, quizzes after each lesson, zero fluff.