Money, Inflation & Purchasing Power

Money provides a unit for quoting prices and settling payments at a stated date. Purchasing power compares that amount with the cost of a basket of goods and services; when the basket becomes dearer, unchanged money buys less. Inflation describes a broad rise in prices, rather than one expensive product. Your household basket may change differently from a published index: rent, food and transport carry different weights. A higher account balance can therefore coexist with lower purchasing power. Compare values over the same dates and after costs; a single exchange-rate quotation is not a consumer-price index.

Worked example (hypothetical)

A basket costs 10 million rial, then 12 million. Its price rose 20%. Unchanged savings buy 10/12 of the old basket, a purchasing-power loss of about 16.7%, not 20%.

Check your understanding

If prices stop rising next month, have they returned to their former level? No. Zero inflation means no further change over that interval, not reversal of earlier increases.

Sources, reviewed 5 October 2026

• IMF: Inflation, Prices on the Rise