Field note 07 / 24·5 min
A raise in money or a raise in buying power?
The number can grow while what it buys stays flat or shrinks.
Two views of the same amount
Nominal values are the amounts shown in money. Real values adjust for a change in prices. The distinction matters when comparing pay or savings over time: a larger account balance does not by itself prove that you can buy more.
Use a ratio for the exact comparison
For one period, divide one plus the nominal growth rate by one plus the inflation rate, then subtract one. Use rates as decimals. Subtracting inflation from nominal growth is a useful approximation at small rates, but the ratio gives the exact comparison for those inputs.
Use the same time period and be clear about deductions. A gross salary rise is not necessarily the same percentage rise in take-home pay. A savings comparison before fees and tax does not show the amount available to spend. An official inflation index is a general benchmark; your own basket can change differently.
More money, slightly less buying power
Suppose pay rises from 2,500 to 2,600: 4% nominal growth. Prices rise 5% over the same year. Real growth is 1.04 ÷ 1.05 − 1 = approximately −0.95%. This simplified comparison ignores any change in tax or benefits.
Illustrative numbers, in consistent units.One thing to try
Take an illustrative pay rise and inflation assumption. Calculate both the nominal change and the exact real change.
Savings grow 5% while prices rise 3% in the same year. What is the exact real growth before fees and tax?
Source notes
These references support the general principles. Product terms and legal protections vary by country.
- What is the difference between nominal and real interest rates?European Central Bank · Checked 2026-11-03
For general education. Examples do not include every fee, tax, personal circumstance or local rule, and are not individual advice.