You’ve probably heard that the US GDP grew at 2% last year. That’s the real growth rate. The nominal growth rate would be 2% plus inflation.
So in other words, real growth rates are corrected for inflation. So if I say the real GDP growth rate has been 2%, then that is after taking inflation into account.
If I say the GDP growth rate has been 5%, then I’m adding inflation to my %.
Real Rate of Return = Nominal Rate of Return – Inflation
Real Rate of Return + Inflation = Nominal Rate of Return
GDP is almost always presented in real terms, stock market performance is almost always presented in nominal terms.
Written in 2015