MEPX
Chapter 3 of 10All chapters
  1. 1Choosing under scarcity
  2. 2How prices behave
  3. 3Inflation and real terms
  4. 4Shopping decisions
  5. 5Income and tax
  6. 6Borrowing
  7. 7Saving and compounding
  8. 8Housing costs
  9. 9Work and wages
  10. 10Making better decisions

Chapter 3 of 10

Inflation and real terms

The number in your pocket moves.

Nominal against real

Nominal is the figure printed; real is that figure adjusted for prices. A pay rise below inflation is a pay cut, however it is announced.

  • Compare wages, savings and returns in real terms only.
  • Personal inflation varies; energy and rent hit some households far harder than the average.

Compounding of prices

Three percent a year roughly doubles prices in twenty four years. Long horizons are where small percentages become large amounts.