Translation: Purchasing Power = purchasing power.

Simple definition: It is the value of currency expressed by the quantity of goods or services that one unit of money can purchase. In simpler terms, it is "the amount your salary or savings can actually buy from the market".

What does it mean for you?

  • If prices rise (inflation) and your income remains the same, your purchasing power decreases; that is, you will buy fewer goods with the same amount you spent before.
  • It explains to you why the prices of things change over time; a cup of coffee that cost 5 riyals years ago and is now 15 riyals does not necessarily mean that coffee has become scarcer or better, but that the purchasing power of the currency has declined.
  • It forces you as an investor not to leave your money frozen, but to look for investments (such as stocks or real estate) that achieve annual returns that exceed the inflation rate, with the primary goal being to "protect your purchasing power" from constant erosion.

Frequently asked question: What is the relationship between purchasing power and inflation, and why do governments care so much about it?

Answer: They work in exactly opposite directions (like a balanced scale); the higher inflation rises (prices increase), the lower purchasing power falls (the value of money decreases). Governments and central banks make protecting purchasing power a top priority (usually through raising interest rates), because the rapid erosion of purchasing power means a decline in citizens' living standards, loss of investor confidence in the domestic currency, which may lead to deep economic recession.