Purchasing Power
The quantity of goods and services a unit of currency can buy.
Formula
Purchasing Power Change = 1 / (1 + Inflation Rate) - 1, over the period considered
Unit
%
In depth
Purchasing power is what money is actually for, and it is the correct lens for any long-horizon financial decision — an investment that grows the balance while losing purchasing power has failed. The erosion is not linear but compounding, which is why long horizons are so unforgiving of low nominal returns. This is the argument against holding long-term savings in instruments that merely match inflation before tax, since tax is levied on the nominal return and pushes the real return negative. Purchasing power parity applies the same idea across countries, comparing what currencies buy rather than what they exchange for.
Worked example
At 6% inflation, ₹1,00,000 buys what ₹55,840 buys today after ten years, since 1 / 1.06 raised to 10 = 0.5584. The balance is unchanged and 44% of its usefulness has gone.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Purchasing Power” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.