How to Calculate Inflation-Adjusted Return
What is Inflation-Adjusted Return?
Real return (inflation-adjusted) shows investment gains after accounting for inflation's erosion of purchasing power. It's always lower than nominal return during inflationary periods.
Formula
Real return = ((1 + nominal return) / (1 + inflation)) - 1
Step-by-Step Guide
- 1Enter nominal return and inflation rate
- 2Apply the real return formula
- 3Result shows true purchasing power gain
Worked Examples
Input
Nominal: 8%, Inflation: 3%
Result
Real return ≈ 4.85%
1.08 / 1.03 - 1
Common Mistakes to Avoid
- ✕Simply subtracting inflation from return
- ✕Using CPI incorrectly for personal inflation
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