Real return and inflation: calculate what your money can buy

Compare the same basket at two points in time

At the start you have SEK 10,000 and the practice basket costs SEK 500. The money can buy 10,000 ÷ 500 = 20 baskets. At the end the amount has grown to SEK 10,500, but the same basket now costs SEK 550. That is about 19.09 baskets. We use the number as a comparison measure, even when it is not a whole number.

The amount rose by 5%. The basket’s price rose by 10%. You have more kronor, but they buy less of exactly the same contents. Every price and change was created for the task; none describes the price of a real item or the current rate of Swedish inflation.

If the table does not fit, scroll it sideways.

Divide the change factors to measure purchasing power

The account’s change factor is 1.05 and the basket’s is 1.10. The real change is (1.05 ÷ 1.10 − 1) × 100, about −4.55%. You can also compare 19.09 baskets with 20, but retain more decimal places during the calculation and round only the final result.

Simply calculating 5 − 10 gives −5 percentage points as the difference between the two rates. Subtraction can provide a rough approximation of real return when the rates are small, but it is not the exact calculation. Division accounts for the new price level being 1.10 times the old one.

One basket is not the whole economy

The Riksbank describes inflation as a broad increase in the general price level. A rise in the price of just one item is different. Price indices therefore use many goods and services with different weights. Our basket makes the division easier to understand; it does not attempt to reproduce an official price index.

Households also buy different things. A more expensive grocery basket tells you what your particular basket costs, but does not establish a country’s inflation rate. When you read a real return, you need to know which price index and period the calculation uses.

Check the period before comparing

Compare monetary value and the price level over the same interval. A return for a whole year and a price change for one month do not answer the question in this example. If the account includes new deposits, separate them from the return first; more money in an account is not always an investment result.

This lesson calculates before tax and fees and makes no suggestions about inflation protection or stocks to choose. Use it to specify what a result measures. Investiq’s product guide describes virtual practice, but this page does not promise a particular inflation calculation inside the app.