The raise that is actually a pay cut
Money has no fixed value: it's worth what it buys. Comparing amounts from different years without adjusting for inflation is like comparing distances while swapping rulers halfway — and it's the mistake that makes people celebrate a raise that was really a loss.
1. Did you get richer?
10 years ago you earned $3,000 a month. Today you earn $4,500 — a 50% raise. Over that period, inflation ran at 5% a year. Did you get richer or poorer?
2. The shrinking ruler
Inflation doesn't act in a straight line: it compounds, just like interest. Money sitting under a mattress keeps the same number but changes size. Drag the controls and watch purchasing power melt.
Purchasing power curve over time under constant inflation.
3. The calculation that changes everything: the real raise
Here's a rule worth memorizing: a raise below inflation is a pay cut. And the math isn't subtraction — it's division. An 8% raise with 5% inflation isn't a 3% real gain; it's 2.86%.
real gain = (1 + raise) ÷ (1 + inflation) − 1
Almost everywhere: in salary negotiation (asking for a "raise" equal to inflation is asking to stand still), in investing (a 10% return with 6% inflation is a 3.8% real gain, not 4%), in rent tied to an index, and in comparing prices across decades. The practical rule: whenever you compare money from different times, convert everything into the currency of one date before drawing any conclusion.
Adjust your own numbers
Find out what today's amount will be worth later and how much you need to keep the same purchasing power.
Open the Purchasing Power Calculator →See also: Pay raise · Compound interest · Lesson: the 8th wonder of the world
Teaching simulation with constant inflation — in reality it varies year to year. For official adjustments, use the published CPI series for the exact period.