The same money. A different basket.
Inflation means a broad increase in prices over time. When the price level rises, the same amount of money buys less. Your account balance and its purchasing power are different things.
One price is not the whole picture
The price of a single product can rise or fall for its own reasons. An inflation measure combines prices across a basket of goods and services. Each item has a weight, so a change in a large spending category affects the index more than the same percentage change in a small one.
The euro area uses the Harmonised Index of Consumer Prices to measure consumer price changes on a comparable basis across countries.
Put it into a small example
If a basket costs €100 today and €103 a year later, that basket has become 3% more expensive.
To buy it again, you need €3 more. Your own basket could change by a different amount because you buy different things or in different proportions.
Compare like with like
A balance that rises from €1,000 to €1,020 has grown by 2% in nominal terms. If prices rise by 3% over the same period, its purchasing power is lower, before allowing for any tax or costs.
The exact change in purchasing power in that hypothetical case is 1.02 ÷ 1.03 − 1, or about −0.97%. Subtracting the inflation rate from the nominal return gives an approximation.
Use the idea in your budget
A national inflation rate is not a forecast for every line in your spending plan. Check the amounts you actually pay when renewing contracts or reviewing the month. Keep examples and published statistics separate: the 3% used here is chosen to show the calculation.
A bigger balance and greater purchasing power are not the same. Compare changes over the same period.
Sources & further reading
Examples are illustrative. Product terms, taxes and protections depend on your location and circumstances. This guide is general education.