Real income is how much money an individual or entity makes after accounting for inflation. One of the effects of inflation has been a fall in the value of real income. Because the value of money falls during inflation, income earners are affected the most.

Real income measures the power a person has to purchase items based on how that money is affected by, either increasing or decreasing, inflation. If inflation increases more than income, real income will go down. If inflation decreases and income stays the same, then real income goes up.