How to use
- Enter the nominal rate, the rate before inflation.
- Enter the inflation rate you want to remove.
- Press Calculate. The hero is the real rate.
- The rule of 72 and the compound-interest pages still want the rate you choose to project. This page only converts one rate into the other.
How it's calculated
Real percent = ((1 + nominal ÷ 100) ÷ (1 + inflation ÷ 100) − 1) × 100.
Subtracting inflation from the nominal rate is close when both rates are small, and it drifts as they grow. A nominal rate of 7 and inflation of 3 is not exactly 4.
Worked example
Seven percent nominal and 3 percent inflation: 1.07 ÷ 1.03 − 1 = 3.883 percent, not 4. If inflation equals the nominal rate, the real rate is zero. If inflation is higher, the real rate is negative.
Assumptions
One period for both rates, usually a year. Taxes are not removed. The inflation number is an assumption you type, not a published index fetched by the page.
FAQ
Why not subtract?
Subtraction skips the cross term. The division is the definition this page uses, and the example shows the gap at 7 and 3.
Can inflation be negative?
Yes, as long as it stays above −100 percent. Deflation raises the real rate above the nominal rate.
Is this a stock-market forecast?
No. It adjusts the rate you typed. It does not predict a return.
Where do I project a balance?
The compound-interest calculator. Put the real rate in only if you want the balance in today's purchasing power, and say so to yourself.