When was the last time you checked your investment returns and thought, “Am I really getting ahead?” In a year where inflation remains front and centre for Australians, understanding the concept of inflation-adjusted return—or “real return”—has never been more crucial. In 2025, with the Consumer Price Index (CPI) fluctuating and the RBA recalibrating its monetary policy, focusing on real returns could mean the difference between building wealth and simply treading water.
What Is Inflation-Adjusted Return?
The inflation-adjusted return represents your actual gain after accounting for the eroding effect of rising prices. In simple terms, it tells you how much your money has truly grown in purchasing power, not just on paper. For example, if your super fund posts a 6% annual return but inflation runs at 4%, your real return is only 2%. That 2% is what you can spend above last year’s cost of living.
Why does this matter in 2025? Because Australia’s inflation rate, while moderating, is still hovering around 3.2%—above the RBA’s 2-3% target band. Many term deposits and low-risk investments are struggling to outpace this figure, meaning savers could be going backwards in real terms.
How to Calculate Inflation-Adjusted Returns
Calculating the real return is straightforward, but often overlooked in personal finance. Here’s the formula:
- Nominal return (the return you see advertised) minus inflation rate = Inflation-adjusted return
For a more precise calculation, especially for larger investments, use:
Real Return = [(1 + Nominal Return) / (1 + Inflation Rate)] - 1
Example: If your portfolio grew by 8% in 2024 and inflation averaged 3.2%, your real return was:
[(1 + 0.08) / (1 + 0.032)] – 1 ≈ 4.7%
This difference might seem minor over one year, but compound it over a decade, and the gap becomes substantial. For retirees drawing down on super, or younger Australians working towards a home deposit, the distinction between nominal and real returns is critical for long-term planning.
Why Real Returns Matter in 2025
Australia’s financial landscape in 2025 is being shaped by persistent, if moderating, inflation and a cautious but steady RBA. The federal government’s May 2025 budget included new cost-of-living measures, but household expenses—from groceries to utilities—are still climbing faster than pre-pandemic averages.
Consider these real-world scenarios:
- Superannuation: The median balanced super fund posted a 7.1% return in FY2024, but with inflation above 3%, real growth is closer to 4%. This impacts retirement projections and drawdown strategies.
- Property investment: National dwelling values rose 5% in the past year, but if your rental expenses, rates, and maintenance costs increased by 4%, your real return is a modest 1%.
- Term deposits: Average 1-year term deposit rates are about 4.5% in June 2025. After inflation, the real yield is just over 1%—barely beating cash.
Ignoring inflation in your calculations can lead to overestimating your progress and underestimating future needs. For investors, retirees, and savers alike, the focus for 2025 should be on assets and strategies that consistently deliver positive real returns.
Strategies to Maximise Your Real Returns
With inflation still a risk factor, it’s not enough to chase the highest nominal yield. Australians should consider:
- Diversifying across asset classes—equities, infrastructure, and inflation-linked bonds tend to offer better inflation protection over the long term.
- Reviewing fees and taxes—management fees, platform charges, and tax can further erode real returns. Opt for low-fee investment options where possible.
- Reassessing cash holdings—with high inflation, large cash balances lose value quickly. Keep only what you need for emergencies.
- Considering inflation-linked products—some ETFs and bonds adjust payouts in line with CPI, offering a hedge against rising prices.
For example, several major super funds introduced more inflation-aware investment options in 2025, reflecting the shift in member priorities. Meanwhile, ETFs tracking global infrastructure or Australian CPI-linked bonds have seen increased inflows from retail investors wary of ongoing price pressures.
Looking Ahead: Inflation and Your Financial Future
The bottom line? In a high-inflation world, it’s the real return—not the headline number—that tells you whether your money is working for you. As you review your investments, savings, and retirement plans in 2025, make sure you’re calculating returns after inflation and adjusting your strategy accordingly. The era of ignoring inflation is over; now’s the time to focus on what truly matters for your financial wellbeing.
