Real vs. nominal value
Nominal values are stated in current dollars; real values are adjusted for inflation to show true buying power.
What it means
A nominal figure is the face amount: the number on a paycheck, a price tag or an account statement. A real figure removes the effect of inflation so amounts from different years can be compared fairly. Economists and planners often express real values in the dollars of a single base year.
The same idea applies to rates. A nominal return or interest rate is the stated number; the real rate subtracts inflation, roughly speaking. A savings account paying 4% while prices rise 3% grows only about 1% in real terms. Long-term projections in nominal dollars can look large, so it helps to know which kind of number you are reading.
Example
Suppose your salary rises 4% in a year in which inflation is 3%. Nominally you got a 4% raise, but in real terms your buying power rose only about 1%.
How it’s used
- Comparing incomes or home prices across decades
- Reading retirement calculators that may show either kind of number
- Judging investment returns after inflation
See it in the data: Gasoline as priced vs. in today’s dollars →
Related terms
Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.