Purchasing power

In economics, purchasing power refers to the amount of goods and services a given amount of money -- or, more generally, liquid assets -- can buy. As Adam Smith noted, having money gives one the ability to "command" others' labor, so purchasing power to some extent is power over other people.

If money income stays the same, but the price of most goods go up, the effective purchasing power of that income falls. Falling purchasing power can thus be part of inflation. However, inflation does not always imply falling purchasing power of one's income, since one's money income may rise faster than inflation. In an inflation, there are some winners and some losers.

See also

• Purchasing power parity