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Inflation changes what money can do
Inflation is a broad rise in prices, which means each euro buys less than before.
The idea
Your nominal income is the number on your payslip. Your real income is what that number can actually buy after accounting for price changes.
An example
If income rises 3% but prices rise 4%, your pay is higher on paper while your purchasing power has fallen by roughly 1%.
Put it into practice
Compare salary, savings, and investment growth with inflation—not only with last year’s number.
Test yourself: Income rises 3% while prices rise 4%. What likely happened?
Purchasing power decreased
Correct. Your nominal income rose, but your real purchasing power slipped.
Explanation and illustrative examples by One Card Wiser. Source linked for further reading.
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