Is our salary keeping up with inflation rate?
Say, if your annual salary increment is 10 percent, and inflation rate is at 4 percent, then the ‘effective salary increment’ is actually calculated as such:
[(1 + percentage increment) / (1 + inflation rate)] – 1
In this example, it is 5.77%. It reflects your real increment after removing the effects of inflation.
In personal finance, this is the accurate financial formula to do it instead of doing an approximation : (10 – 4 ) = 6 percent.