What economic condition decreases purchasing power?

Inflation decreases purchasing power because it refers to the general rise in prices of goods and services over time. When inflation occurs, each unit of currency buys fewer goods and services, meaning that consumers can purchase less with the same amount of money. This can erode the savings of individuals and families, making it more difficult for them to afford the same lifestyle they could previously maintain.

In contrast, deflation typically increases purchasing power as it involves a decrease in general price levels, allowing consumers to buy more with less money. Stagnation refers to an economic condition of little or no growth, which can result in stable prices, but does not inherently decrease purchasing power like inflation does. A recession involves a decline in economic activity, which can have complex effects on purchasing power, but is not as directly linked to the erosion of purchasing power as inflation is.