If inflation is at 5% per year, a car that costs $30,000 this year will cost $31,500 next year, and it will only go up from there. Businesses raise their prices to make up for their higher labor costs, and consumers are willing to pay these higher prices because they have more money in their pockets. If you’re earning a fixed interest rate of 3% per year and inflation is at 4% per year, your investment is actually losing value.