Basics

What is inflation — and what does it mean for your savings?

Inflation means that prices in society rise — and that your money therefore buys a little less with every year that passes. At 2% inflation, what costs 100 today costs 102 next year. It sounds harmless, but over 10 years, 100,000 in an account with no interest loses about 18% of its purchasing power. Inflation is why leaving money idle is not risk-free — and why people invest at all.

A worked example

You have 100,000 in an account paying 0% interest. Inflation is 2% a year.

After 1 year: You still have 100,000 — but it buys what 98,000 bought before.
After 10 years: Purchasing power is about 82,000.
After 25 years: About 61,000.

The number on the account has not moved. That is what makes inflation sneaky: the loss is invisible. With 5% inflation, as in 2022–23, it goes more than twice as fast.

Real return — the number that counts

Real return is your return minus inflation. If your investment returns 7% and inflation is 2%, your real return is about 5%. If the bank account pays 1% and inflation is 2%, your real return is −1%: you are getting poorer even though the balance rises. That is the number to look at when judging whether something is a good way to save.

What inflation does to stocks and bonds

Stocks have historically kept pace with inflation over the long run, because companies raise their prices — the pharma company charges more for the medicine, the brewer more for the beer. In the short run, high inflation can hurt stocks, because central banks raise interest rates. Bonds with fixed interest are hit directly: the 3% you were promised is worth less when prices rise 5%. That is why stocks are considered the best protection against inflation over many years.

Kiggo says: Inflation is the tax nobody voted for. It takes 2% a year of whatever you do nothing with.

The typical beginner's mistake

Believing money in a bank account is "safe". It is safe from swings — not from inflation. Over 20 years, an account with no interest has with certainty lost a third of its purchasing power. That is also a loss. It just does not show in the banking app.

How you see it in Kiggo

Kiggo shows returns in nominal figures — what the price actually did — and does not factor in inflation. In the "Get started" guide, Kiggo explains the difference between saving and investing with inflation as the starting point: what 100,000 is worth in 20 years if it stands still, and if it grows.

Frequently asked questions

What is normal inflation?

Most central banks, including the European Central Bank, aim for around 2% a year. In 2022 inflation in many European countries exceeded 10% — the highest in 40 years — and then fell back towards normal.

Do stocks protect against inflation?

Over the long run, historically yes: companies' earnings and thereby prices follow prices in general. In the short run not necessarily — years of sudden high inflation have often been poor stock years.

What does inflation mean for tax?

You are taxed on your whole gain — including the part that is merely inflation. If a stock rises 20% over ten years with 2% inflation, the real gain is zero, but you pay tax on 20%. It is one reason to prefer low costs and a long horizon.

Kiggo explains — Kiggo does not advise. We never tell you what to buy or sell, and key figures can only be compared between companies in the same industry. The decision is yours. Last updated 2026-09-23.

Written by Claus Frisch, founder of Kiggo. Not an adviser, not a bank — Kiggo explains, you decide.