How does inflation typically affect a person's savings?

Inflation typically erodes the purchasing power of money over time. When inflation rises, the cost of goods and services increases, meaning that each unit of currency buys fewer goods than it did previously. Therefore, if a person has savings in a bank account that earns a nominal interest rate lower than the inflation rate, the real value of those savings effectively decreases.

For example, if a person has $1,000 in savings and inflation is at 3% while the interest earned on those savings is only 1%, the real value of that money after a year is less than it was at the beginning of the year. The increased prices of goods mean that the same $1,000 won't be able to buy as much in the future as it could today, reflecting a decrease in the purchasing power of savings. This is why the answer indicating that savings decrease in value due to inflation is correct.

In contrast, the choices that suggest savings increase in value, remain unaffected, or become irrelevant fail to recognize the fundamental impact inflation has on the purchasing power and overall value of saved money.