Inflation affects investments by setting minimum return thresholds portfolios must exceed just to maintain purchasing power. The difference between 2% and 3% inflation seems trivial but compounds dramatically - a retiree with $1 million in 2005 needs $1.8 million today at 3% inflation to maintain the same lifestyle. This article shows why that extra percentage point matters, how inflation erodes wealth through compounding, and how cycle-based returns can overcome erosion.
