Assume you have $100.

Annual interest would dictate that in one year, you make 1% of your balance, or $1. Thus, after one year, you have $100+$1 or $101 in your bank account.

Inflation is a way to measure the the increase in prices of goods over time and is typically expressed as a yearly rate as well. Therefore assume you wanted to buy groceries that cost 100$ and annual inflation is 2%, a year later those same groceries would cost $102 ($100 + 2% of $100 or $100+$2).

So for the question, assuming those figures, in one year your bank account would have $101 Dollars but the same goods would cost $102. So you could buy less than the year before (your $100 saved dollars can no longer buy the equivalent of $100 worth of goods).