Glossary · Economy
Nominal vs real
Nominal values are in the money of the day; real values take inflation out, so you can compare what money buys across years.
Also called: nominal and real, in real terms, inflation-adjusted, constant dollars, today’s dollars
Average hourly earnings were $2.50 in Jan 1964. Now: $32.75 (Oct 2026).
In dollars of the day, pay grew 13.1 times.
In plain words
In 1964, a typical American worker earned $2.50 an hour; now it is $32.75 (Oct 2026). Is that worker 13.1 times better off? No: prices rose too. Those are nominal amounts, in the dollars of the day. Convert the old wage into today’s dollars using inflation and you get its real value.
Real values answer the question that matters: how much can the money buy? In today’s dollars the 1964 wage was worth $27.31, so real pay changed by +20% in all.
The same goes for GDP, interest rates, house prices and investment returns: the nominal number includes inflation, the real one does not.
Example
Did your raise beat inflation?
- Your pay goes from $50,000 to $60,000: +20% nominal.
- Over the same years, prices rose 15%.
- In the old dollars, the new pay is worth $60,000 ÷ 1.15 = $52,174.
- Real raise: $52,174 ÷ $50,000 − 1 = +4.3%. If prices had risen 25%, the same raise would be a real cut of 4%.
Quick rule: real change ≈ nominal change − inflation (20% − 15% = 5%, close to the exact 4.3%).
One level deeper
The tool is a price index such as the consumer price index: real value = nominal value × (price index now ÷ price index then). For the whole economy, statisticians use the GDP deflator instead, which gives real GDP.
For interest rates the rule is subtraction: the real interest rate ≈ nominal rate − inflation. A 5% savings rate with 3% inflation is about 2% real; with 6% inflation it is about −1%.
People often judge money in nominal terms, which economists call money illusion. A 3% raise during 4% inflation tends to feel better than a 1% pay cut with no inflation, although both leave you about 1% poorer.
An hour’s pay since 1964, nominal and real
Average hourly earnings of production and nonsupervisory workers, about four in five private-sector employees. The nominal line climbs steadily. In today’s dollars, pay fell from the early 1970s to the mid-1990s and has risen since.
The numbers behind the chart
| Date | In today’s dollars | In dollars of the day |
|---|---|---|
| Jan 1964 | $27.31 | $2.5 |
| Dec 1970 | $29.68 | $3.5 |
| Dec 1980 | $27.88 | $7.13 |
| Dec 1990 | $26.08 | $10.34 |
| Dec 2000 | $27.72 | $14.29 |
| Dec 2010 | $29.61 | $19.23 |
| Dec 2020 | $32.6 | $25.16 |
| Dec 2022 | $32.09 | $28.22 |
| Dec 2023 | $32.43 | $29.47 |
| Dec 2024 | $32.79 | $30.66 |
| Dec 2025 | $33.15 | $31.83 |
| Oct 2026 | $32.75 | $32.75 |
Why it matters
Almost every money comparison over time needs it: pay, house prices, the price of gas, a stock’s return. Without adjusting, the past always looks cheap.
Investors care about real returns: US stocks returned 9.4% a year since 1871 before inflation and 7.1% after.
Contracts, tax brackets and benefits are often adjusted for inflation (“indexed”) so that their real value does not erode.
A common mistake
Myth: Gas cost about 30 cents a gallon in 1960, so it was far cheaper then.
In fact: In today’s dollars those 30 cents are a few dollars, not far from recent prices. Our inflation calculator converts any amount between any two months since 1913.
Questions people ask
What does “in real terms” mean?
Adjusted for inflation: the amount is expressed in the money of one chosen year, usually today’s, so different years can be compared.
How do you convert nominal to real?
Multiply by the ratio of the price index now to the price index then. $2.50 in Jan 1964 × (CPI in Oct 2026 ÷ CPI in Jan 1964) = $27.31.
Is real GDP the same as GDP adjusted for inflation?
Yes: real GDP values every year’s output at the prices of one base year (2017 for the US), so it grows only when the economy produces more.
Read more on BigCapital
About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- Consumer price index, all items (CPI-U), not seasonally adjusted: U.S. Bureau of Labor Statistics, Consumer Price Index, series CPIAUCNS; retrieved from FRED, Federal Reserve Bank of St. Louis.
- Average hourly earnings, production and nonsupervisory employees, private: U.S. Bureau of Labor Statistics, Current Employment Statistics (establishment survey), series AHETPI; retrieved from FRED, Federal Reserve Bank of St. Louis.
- S&P Composite price and total return since 1871, and US consumer prices: Robert J. Shiller, Online Data (shillerdata.com); total return with dividends reinvested monthly, calculated by BigCapital.
- This page explains a term. It is not investment advice.