And what happens if there is a drought and the price of groceries skyrocket due to food shortages.

Your balance buys the same amount of food as before keeping your stomach equally filled and satisfied and keep that aspect of your living standard stable. This was a rough example which could be improved by adding indices of other living expenses into the basket.

The idea that inflation and price increases are the same is mistaken. Prices can go up or down for a variety of reasons.

I think the definition of the word 'inflation' varies by the topic and the user. In some cases inflation seems to mean the loss of purchasing power or at least that's what they would want to protect against.