How this calculation works
Convert both percentages to decimal growth factors. Dividing the investment growth factor by the price growth factor measures the change in purchasing power. The simple difference is also displayed to show how an approximation can diverge.
Real return = [(1 + nominal return) ÷ (1 + inflation) − 1] × 100%A worked example
An 8% return with 6% inflation gives 1.08 ÷ 1.06 − 1, or approximately 1.886792% real growth. The subtraction approximation is 2%.
Good to know
Use effective returns for matching periods; do not mix a monthly return with annual inflation. Taxes, fees, exchange rates and personal spending-pattern differences are excluded. Both rates must exceed −100%.
Reference: Czech National Bank: nominal and real interest rates (opens in a new tab) ↗
Count what the balance can buy
Suppose ₹100 grows to ₹108 while a comparable basket of purchases rises from ₹100 to ₹106. The ending balance buys 108/106 of the original basket. The gain in purchasing power is approximately 1.8868%, even though the account balance grew by 8%.
The subtraction shortcut gives 2%. That can be a convenient approximation at low rates, but it is not the same calculation. The tool shows both so the size of the difference is visible rather than hidden in a rounding note.
If the nominal return and inflation are equal for the same period, the real return is zero. More currency units do not necessarily buy a larger share of the basket.
Match the period and the price measure
Use inflation and investment returns that cover the same interval. A one-month return compared with a twelve-month inflation rate does not measure a meaningful like-for-like real change. Annualizing a volatile monthly return is another assumption, not a substitute for matching actual dates.
A general price index represents a defined basket. Your own rent, food, travel or education costs can move differently. You can test a personal scenario here, but the calculator does not fetch inflation data or identify the correct index for your purpose.
A negative nominal return and a negative inflation rate are both supported above −100%. Falling prices can improve purchasing power relative to the same nominal return, while a fall in the investment balance can still dominate. Taxes and fees should be reflected in a suitable net return if you want an after-cost scenario.
A few questions, answered
Is this a forecast?
No. It adjusts the two rates you supply. Entering expected figures creates a scenario, while entering realized figures describes that period under the chosen price measure.
Why can I not enter −100% inflation?
A −100% price change makes the price growth factor zero, so the ratio would divide by zero. The accepted input range stays above that boundary.
Is real return the same as cash interest paid?
No. It is a purchasing-power comparison. It can be negative even when cash interest is positive.