✍️ Author: Karel Havlíček – Bitcoin Analyst & Editor · 📅 Updated:
What inflation is and why it happens
Inflation is the general rise in prices across an economy – in other words, a fall in money’s purchasing power. The same banknote buys less next year than it does today. It’s measured by the Consumer Price Index (CPI), which tracks the prices of a basket of everyday goods and services.
The eurozone hit a peak inflation rate of 10.6% year-on-year in October 2022 (Eurostat) – the highest in decades, driven mainly by energy and food prices after Russia’s invasion of Ukraine. But even in “calm” years the European Central Bank targets 2% annually – which sounds small, but compounded over time means half your purchasing power gone in 35 years.
- Fiat money (euros, dollars) is backed by neither gold nor anything physical
- Central banks can expand the money supply as needed
- Even “low” 2% annual inflation is a noticeable loss over decades
- Inflation hurts those holding cash the most – not those holding real assets
How to protect against debasement
The classic answer: invest surplus cash in assets whose supply isn’t unlimited – real estate, stocks, gold, or Bitcoin, with a hard-capped supply of 21 million coins that no central bank can increase. Small regular purchases (DCA) reduce timing risk – try it on the DCA calculator.
Before you start investing, check the exchange comparison and keep reading this series – part two explains how we ended up with today’s fiat money system in the first place.
✅ Pros
- Moderate inflation encourages investing instead of hoarding cash
- CPI is a transparent, publicly tracked indicator
⚠️ Cons
- Even the “target” 2% inflation meaningfully erodes purchasing power over decades
- Inflation hits cash savings and low-yield accounts hardest
❓ Frequently asked questions
How high did eurozone inflation peak?
10.6% year-on-year in October 2022, according to Eurostat – the highest reading in decades, driven mainly by energy and food prices.
Why does the ECB target 2% inflation specifically?
It’s considered a balance between price stability and room for monetary policy during a recession. Even so, it still means a long-term, if slow, erosion of cash purchasing power.
Is Bitcoin a solution to inflation?
Bitcoin has a mathematically fixed supply of 21 million coins that cannot be increased – that’s its key difference from fiat currencies. It’s not a guarantee of profit or protection from short-term volatility, though.
This article is purely educational. Links to exchange and wallet reviews in the text are not paid placements – they link to our own reviews elsewhere on this site. Not financial advice.