Know how inflation has impacted your pay?

Inflation is a measure of how much the prices of good (such as food or televisions) and services (such as haircuts or train tickets) have gone up over time.

Usually people measure inflation by comparing the cost of things today with how much they cost a year ago. The average increase in price is know as the inflation rate.

So if inflation is 3%, it means prices are 3% higher (on average) than they were a year ago. For example, if a load of bread cost £1 a year ago and now it's £1.03 then its price has risen by 3%.

Inflation means that what you can buy with a certain amount of money today is less than it was in the past.

A 'nominal' pay change is a change in the amount of money someone is paid, as represented by a change in the number after the £ sign.

A 'real terms' pay change is a change in the value of the money that someone is paid, a change in what you can buy with that money. This requires a calculation involving additional information besides your pay, so can be hard to gauge intuitively.

For example, if you are paid £20,000 one year, and £21,000 the next year, you have received a 5% nominal pay rise.

However, if in this time the rate of inflation is 10%, you have actually received a real terms pay cut of 5%.

This means that despite earning a larger amount of money, you can buy less with your pay this year than you could last year.

This calculator uses the Office for National Stastics' (ONS) estimates of the Consumer Price Index.