Inflation-Adjusted Salary Calculator
A timely tool for 2024–2025 with cost-of-living pressures to calculate inflation-adjusted salary.
Quick Use Samples
Your Salary & Rates
Salary Projection
In 10 years, your nominal salary is projected to be $107,513. However, after adjusting for an annual inflation rate of 2.5%, the real value of your salary (in today's dollars) will be $83,989. Your purchasing power is growing by approximately 0.5% each year.
Real vs. Nominal Salary Over Time
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What is an Inflation-Adjusted Salary?
An inflation-adjusted salary, also known as 'real' salary, is a measure of your income that accounts for the effects of inflation. It shows what your salary is worth in terms of purchasing power. Even if your nominal (dollar amount) salary increases, your real salary can decrease if inflation is higher than your pay rise.
Behind the Formula
The calculator projects your nominal salary into the future using your expected annual raise. It then discounts this future salary for each year of inflation. The formula for the real value after one year is: Nominal Salary / (1 + Inflation Rate). This process is repeated to show how purchasing power changes over time.
Expert Insights
- A pay rise that is equal to the inflation rate is effectively a pay freeze. Your purchasing power remains the same, meaning you are no better off financially than you were the previous year.
- Assets like property and shares are often considered a hedge against inflation because their value tends to rise with the general level of prices, unlike cash savings which lose value.
- The Reserve Bank of Australia aims to keep inflation within a target band of 2-3% over time. Periods of high inflation outside this band can rapidly erode the real value of wages and savings.
Actionable Tips
- Use the inflation rate (CPI) as a benchmark in your salary negotiations. Frame your request for a raise as a need to at least maintain, and ideally increase, your real purchasing power.
- Invest your savings in assets that are likely to grow faster than inflation. Leaving your long-term savings in a low-interest bank account is a guaranteed way to lose purchasing power.
- Focus on growing your 'real' income. This means seeking pay rises that are consistently higher than the inflation rate, which is the only way to genuinely increase your wealth through your salary.
Real-World Examples
Falling behind inflation
An employee receives a 2% pay rise in a year where inflation is 4%. Although their nominal salary has increased, their real, inflation-adjusted salary has actually decreased by approximately 2%.
Keeping pace with inflation
Someone negotiates a 3.5% pay rise to match the 3.5% inflation rate for the year. Their purchasing power remains the same; they are not financially better or worse off.
Getting ahead of inflation
A high-performer secures a 7% pay rise in a year with 3% inflation. Their real income has grown by approximately 4%, significantly increasing their ability to save and invest.
Glossary of Terms
Inflation
The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
Consumer Price Index (CPI)
The most common measure of inflation in Australia, which tracks the average price change of a basket of household goods and services.
Purchasing Power
The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Inflation erodes purchasing power.