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The textbook / Chapter 2 · Inflation Is More Than Prices

Nominal vs. real

The number on your paycheck can go up while what it buys goes down. Economists have two words for that gap, and once you know them, every “record high” in the news reads differently.

Nominal

The number on the tag.

Dollars as printed: the price, the paycheck, the balance. It doesn't care what those dollars can buy. Nominal, in the dictionary

Real

What it actually buys.

The same dollars, adjusted for inflation so you can compare across years. It's the number that tells you whether you're ahead. Real, in the dictionary

U.S. example · the federal minimum wage

The raise that wasn't

Since 1938 the federal minimum wage has gone from 25 cents to $7.25. In paycheck dollars that's a climb. In what it buys, the best year was 1968. Pick a year and see.

On the paycheck$1.60per hour, in 1968 dollars
What it buys today$15.38per hour, in 2026 dollars

today's $7.25

Federal minimum wage, rate in effect on July 1 (U.S. Department of Labor), adjusted with the Minneapolis Fed CPI (2026 is their estimate).

$15.381968's $1.60, in 2026 dollars
−53%what $7.25 buys today vs. that 1968 peak
17 yearssince the last raise (July 24, 2009): the longest wait since 1938

Don't trust, verify

Do the math yourself

real value = nominal × (prices now ÷ prices then)

$1.60 × (1,004.8 ÷ 104.5) = $15.38

1,004.8 and 104.5 are the Minneapolis Fed's consumer price index for 2026 and 1968. Swap in any year and any price.

Mara's take · Mara writes this

Optional: what this means for someone working for minimum wage today, in my words. Labeled as my interpretation.

Follow the moneyNominalRealCPIPurchasing powerThe shrinking dollar calculatorWhy does everything cost more?Chapter 2