Nominal vs. real
Nominal value is the euro amount as printed — on a payslip, a savings statement, a pension estimate. Real value adjusts that same amount for inflation (the general rise in prices over time), showing what it actually buys. The key test applies to any balance: the euro figure can grow while its purchasing power does not. A 3% nominal raise during a year of 5% inflation is real shrinkage — the number on the payslip grew, but what it buys fell.
Why it matters
German payslips, Sparkonto (savings account) statements, and Rente (pension) projections all report nominal euros — inflation is never subtracted automatically. A salary raise, a savings interest rate, and a pension forecast all look larger in nominal terms than they turn out to be in real terms once inflation eats into them. Comparing figures across years without adjusting for inflation hides whether purchasing power actually improved or quietly declined. The distinction matters most in periods of higher inflation, when the gap between the two numbers widens.
Worked examples
1. A salary raise. A salary rises from €45,000 to €46,350 — a nominal increase of 3%. Inflation that year runs at 5%. The approximate real change is nominal minus inflation: 3% - 5% = -2%. Worked precisely, €46,350 in this year's money buys what €46,350 / 1.05 ≈ €44,143 bought last year — about 1.9% less than the original €45,000, even though the payslip shows a raise.
2. Savings interest. €8,000 sits in a savings account paying 2% nominal interest for one year, growing to €8,160. Inflation that year is 3%. Approximate real return: 2% - 3% = -1%. The account balance grew, but its purchasing power did not — €8,160 next year buys about what €8,160 / 1.03 ≈ €7,922 bought this year, less than the original €8,000.
| Scenario | Nominal figure | Inflation | Real value (today's purchasing power) | Real change |
|---|---|---|---|---|
| Salary: €45,000 to €46,350 (+3%) | €46,350 | 5% | ≈ €44,143 | ≈ -1.9% |
| Savings: €8,000 at 2% interest | €8,160 | 3% | ≈ €7,922 | ≈ -1.0% |
Both scenarios show the same pattern: the nominal figure moved up, but the real figure moved down because inflation ran ahead of the nominal increase. Nominal growth is real growth only when it outpaces inflation — otherwise the euro amount is bigger, but what it buys is smaller.
Check yourself
A salary rises from €45,000 to €46,350 (a nominal increase of 3%). Inflation that year is 5%. Using the approximation real change ≈ nominal change − inflation, what is the approximate real percentage change? (Enter as a number, e.g. -2 for -2%.)
€8,000 in a savings account earns 2% nominal interest over one year. Inflation that year is 3%. Using the approximation real return ≈ nominal rate − inflation, what is the approximate real return in percent? (Enter as a number, e.g. -1 for -1%.)
Which statement describes a real value rather than a nominal value?
A pension projection shows a nominal payout growing from €1,600/month to €1,648/month (a 3% nominal increase) over a year with 4% inflation. Using the approximation real change ≈ nominal change − inflation, what is the approximate real percentage change? (Enter as a number, e.g. -1 for -1%.)