realvalue

Real value refers to the value of money, goods, or assets expressed in terms of constant purchasing power, removing the effects of inflation. It contrasts with nominal value, which is measured using current prices. Real value is commonly used in economics and finance to compare values over time and to assess true economic trends.

Real value is typically obtained by deflating nominal figures with a price index such as the consumer price index (CPI) or the GDP deflator. A common formula is Real value = Nominal value × (Price level in base year / Price level in observation year). Equivalently, Real value = Nominal value / (Price index at observation / Price index in base year). By converting to base-year dollars, analysts can gauge changes in purchasing power and true returns.

In practice, real value is applied to wages, pensions, investments, and national accounts to assess purchasing power, living standards, and investment performance without inflation distortion. In finance, real values feed into models that use real interest rates and real cash flows, avoiding inflation forecasts.

Limitations include dependence on the chosen price index, which affects results; measurement errors in inflation; quality changes in goods; and substitution effects that may bias the deflator. Because inflation is not perfectly measured across all sectors, real value estimates carry uncertainty.

Some discussions use "real value" synonymously with intrinsic or fundamental value in asset valuation, referring to the present value of expected future cash flows in real terms. See also inflation, CPI, deflator, real interest rate.