What is Real income?
Income cleared of the effect of price changes (inflation), that is, income showing how many goods and services can be bought with the money. Nominal income is the number of soum written on the payslip; real income is the purchasing power of those soum. Approximate calculation: real income = nominal income ÷ price index (base period = 1). If nominal income grows faster than prices, real income rises; if it grows more slowly, a person actually becomes poorer even though the salary has increased. That is why wage growth should be assessed against the consumer price index.