Purchasing Power

From Financial Literacy Wiki

Purchasing Power refers to the amount of goods and services, 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 certain extent is power over other people, to the extent that they are willing to trade their labor or goods for money.

If money income stays the same, but the price level increases, the purchasing power of that income falls. Inflation does not always imply falling purchasing power of one's real income, since one's money income may rise faster than inflation.