Inflation quietly erodes purchasing power over time: if prices rise faster than the interest you earn on savings, each dollar buys less. Savers sometimes focus on nominal rates (the headline APY) without accounting for inflation, which produces the real return (nominal return minus inflation). For short-term emergency cash, people accept modest real returns in exchange for liquidity and safety, but it’s helpful to understand the arithmetic: if your savings yields 1% and inflation runs 3%, your real purchasing power falls roughly 2% that year. Over multiple years, this compounding gap can noticeably reduce what your emergency fund can buy. This question checks the basic directional effect of inflation greater than interest.