What Is Inflation and How Is It Measured?
Inflation is a **sustained increase in the general price level**. As prices rise, the purchasing power of your money declines – you get fewer goods and services for the same amount of money. In Germany, inflation is measured by the **Federal Statistical Office (Destatis)** using the Consumer Price Index (VPI).
For detailed calculations, you can use our free inflation calculator.
How Inflation Erodes Your Savings Over Time
Inflation behaves like **compound interest in reverse**. The formula for remaining purchasing power is:
Formula: Purchasing Power = Initial Capital ÷ (1 + Inflation Rate)Years
Remaining Value of 10,000 € Under Different Inflation Scenarios
| Inflation Rate | After 5 Years | After 10 Years | After 20 Years | After 30 Years |
|---|---|---|---|---|
| 2% | 9,057 € | 8,203 € | 6,730 € | 5,521 € |
| 3% | 8,626 € | 7,441 € | 5,537 € | 4,120 € |
| 4% | 8,219 € | 6,756 € | 4,564 € | 3,083 € |
| 6% | 7,473 € | 5,584 € | 3,118 € | 1,741 € |
| 8% | 6,806 € | 4,632 € | 2,145 € | 994 € |
At a 4% inflation rate, 10,000 € will only buy what 3,083 € does today after 30 years. At 6% inflation, the purchasing power drops to a meager 1,741 € – a loss of over 82%.
The Crucial Role of the Real Interest Rate (Realzins)
For savers, the **real interest rate** is the only interest rate that matters:
Real Interest Rate ≈ Nominal Interest Rate − Inflation Rate
If you leave your money on a standard savings account (Girokonto) earning 0% interest while inflation is at 2.5%, your real interest rate is **−2.5%** – you are losing money every day.
Tangible Assets (Sachwerte) as Inflation Protection
- Stocks and ETFs: Companies can pass rising costs to consumers through higher prices, making broad equity portfolios (e.g., MSCI World) a very effective long-term shield against inflation.
- Real Estate: Rental income and property values tend to rise with inflation (especially index-linked rents), but real estate is illiquide and carries high transaction costs.
- Gold: Gold is a classic crisis hedge that maintains purchasing power over centuries, though it yields no dividends or interest.
Sources: Destatis VPI, ECB Inflation target, Deutsche Bundesbank database, as of 2026.