Inflation (or increase of prices), being one of the biggest threats to the long-term growth of your portfolio, is a primary driving factor for investments. Inflation erodes the purchasing power of your money over time, making each dollar less valuable and requiring a higher rate of return just to maintain the same standard of living.
Inflation has been relatively tame in recent decades in most developed economies. However, we have seen periods of high inflation flare up periodically due to strong economic growth, supply chain disruptions, geopolitical turmoil impacting commodity prices, and extremely accommodative monetary policies.
Whatever inflation does for the broader economy, to the owner of capital it is a tax — one that is never legislated, never shows up on a return, and compounds silently against you. Mild inflation is a manageable headwind; sustained high inflation has devastated portfolio returns and ruined the unprepared. Either way your task is the same — earn an after-tax return above it, or watch your wealth quietly shrink.