INFLATION-ADJUSTED REAL RETURN

Real Return Calculator

Convert same-period nominal return and inflation rates into an exact inflation-adjusted real return, and compare it with simple subtraction.

Exact inflation-adjusted return

Inflation changes the purchasing power of a nominal return. The exact one-period real rate is (1 + nominal) ÷ (1 + inflation) − 1. Subtracting inflation from the nominal rate is a common approximation; this page reports both so the gap is visible. The inflation page changes a dollar amount. Annual return annualizes a total return without inflation. CAGR is a compound growth rate without an inflation adjustment.

Real return = (1 + nominal) ÷ (1 + inflation) − 1
Approximation = nominal − inflation

Example

A 7% nominal return with 3% inflation is about 3.8835% real. The approximation 7% − 3% = 4% overstates the exact rate by about 0.12 percentage points. 8% and 3% is about 4.85% real. 23.3% and 3% is about 19.71% real.

What the formula leaves out

Taxes, fees, cash flows, and mismatched measurement periods stay outside this one-period identity. Both inputs must cover the same period. Nominal return and inflation at or below −100% are rejected because their gross growth factors are not positive.

Frequently asked questions

Why is this lower than nominal minus inflation?

The exact formula divides by 1 + inflation. Subtracting inflation ignores that interaction and usually overstates the real rate when both figures are positive.

Do the two rates need the same period?

Yes. Compare an annual nominal return with annual inflation, or use matching periods for both.

Can inflation be negative?

Yes. Deflation raises the real return. Rates at or below −100% are rejected.

Does this include taxes?

No. It is a pretax identity between two matching-period rates.

More calculators

Inflation Calculator →CAGR Calculator →Annual Return Calculator →

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