I keep hearing this term used in references to salaries for schools districts and I don’t get it at all.
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Simply put it’s a tool to nullify of the effect of inflation on growth statistics.
It’s most commonly used with GDP, Gross Domestic Product, which measures the output of a country. If you just use dollar values you might say our GDP grew 10% in 2022. That’s supposed to mean we literally produced 10% more economic value in total that year.
Yet if inflation is exceptionally high, say ~8%, then that difference is almost entirely explained by the decrease in the value of money. Instead of actually producing more, the dollar is simply worth less and the ‘real’ GDP growth should be modified by the IPD.
In that “hypothetical” scenario then our real GDP growth is only around 2%.
This can go negative as well. If you’re given a 5% raise, but inflation was 8%, the IPD dictates you actually received a ~3% pay cut.
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