What is inflation and how will it affect your savings in 2025?

Inflation is one of the economic issues that tends to make the most headlines. After reaching historic levels in 2022, it has been steadily declining. However, despite more stable rates, inflation continues to directly affect consumers' pockets and erode their purchasing power. It is therefore important to understand how it works and how it impacts your savings.

What is inflation and why does it occur?

Inflation is the widespread and sustained increase in the prices of goods and services over a given period. When prices rise, the purchasing power of currency decreases, meaning fewer things can be bought with the same amount of money. While moderate inflation is normal, when it spikes or remains high for a long time, its effects can be detrimental to consumers and savers.

In Spain – and in most countries – inflation is measured through the Consumer Price Index (CPI), an indicator published monthly by the National Statistics Institute (INE). This index tracks changes in the prices of a 'shopping basket' containing hundreds of products and services that represent standard household consumption: from food and transport to leisure, housing and education.

The main causes of inflation are the following:

In 2025, inflation remains a major concern for central banks and governments, which have to balance their policies to contain prices without slowing economic growth.

Inflation in Spain: key data up to 2024

The trajectory of inflation in Spain in recent years has been marked by great volatility, driven by a combination of external and internal factors.

In 2020, at the height of the pandemic, inflation registered negative figures, closing the year at a rate of -0.5%. It was a period of contraction in consumption, mobility restrictions, and falling oil prices. However, this scenario changed drastically in the following years. In 2021, inflation rebounded sharply to end the year at 6.5%, driven by the recovery in demand following the pandemic and the initial bottlenecks in the global supply chain.

There was a notable inflationary spike in 2022, with months in which the year-on-year change in the CPI exceeded 10%, peaking in July at 10.8%. Rising energy, fuel and basic food prices, coupled with the uncertainty generated by the invasion of Ukraine, intensified pressure on prices. It was one of the largest increases recorded in decades.

In 2023, the measures taken to contain the rise in inflation – such as fiscal intervention, interest rate increases and targeted aid to the most vulnerable sectors – proved effective. Inflation began to fall and closed the year at around 3.1%.

This trend was consolidated in 2024, which ended with an average rate of 2.8%, closer to the 2% target set by the European Central Bank (ECB). In fact, at the time of writing this article, the latest data released by the National Statistics Institute (INE) places underlying inflation at 2%, already within that target, and general inflation at 2.3%.

How inflation affects the purchasing power of your savings

One of the most direct and least visible consequences of inflation is the loss of purchasing power. Prices don't have to skyrocket to affect your savings: moderate steady inflation is enough to make the money you save today worth less tomorrow. But how exactly does this loss occur?

What is the loss of purchasing power?

Purchasing power refers to the amount of goods and services that can be purchased with a given amount of money. When prices rise due to inflation, money loses value. In other words, it takes more money to buy the same things as before. Therefore, if savings do not generate a return at least equal to inflation, purchasing power is effectively lost.

Although the amount saved remains the same in nominal terms, its real value decreases over time. This loss is silent but constant, and it especially affects those who keep their money in current accounts or financial products without positive real returns.

This is how your savings lose value year after year

To get a clearer idea of the effect, let's take a look at what happens with a saving of 10,000 euros maintained without interest for several years in a scenario of average inflation. If the annual inflation rate is 3%, after 10 years those 10,000 euros will have lost about 26% of their real value. And with inflation at 5%, the loss exceeds 40%.

This example shows that even with 'moderate' inflation, the impact on savings in the medium and long term can be very significant. It is therefore essential to look for alternatives that at least allow you to maintain the real value of money over time.

What can you do to protect your savings from inflation?

In an environment where the cost of living is progressively increasing, one of the main concerns for any saver is how to prevent their money from losing value over time. The answer is to look for alternatives that generate a return higher than inflation. It's not just about saving, it's about saving wisely.

This is where financial planning becomes key to preserving the real value of savings. The goal isn't to take unnecessary risks, but to understand that the only way to counteract inflation is to make your money work for you.

One of the most common strategies is to invest in financial products that have medium- and long-term growth potential. Here, everything from pension plans and investment funds, to diversified portfolios with different types of assets – equities, fixed income, sustainable investments, among others – adapted to the profile of each investor come into play. In addition, there are professionally managed products that adjust investment decisions based on the economic context, which is particularly useful in changing environments like the current one.

It is also advisable to set clear objectives define a time horizon. The longer you invest, the greater your chances of offsetting market fluctuations and achieving real returns. Investing isn't just about making money, it's about protecting it from the silent erosion of inflation.

It is important to periodically review your savings and investment strategy to ensure it remains aligned with the economic climate and your personal needs. Staying informed about inflation and acting wisely can make the difference between preserving or losing value.