In finance, inflation is defined as a measure of the typical diminishment in buying power of money over time.

As time goes by, the buying power of a dollar bill typically goes down. So, for example, a one dollar bill will buy less stuff (such as sticks of gum) ten years from now than it will today. And a one dollar bill used to buy more stuff (such as sticks of gum) ten years ago than it does today. The true buying power of a dollar bill in the past or in the future is usually referred to as its real value as opposed to its nominal value.

The nominal value of a piece of currency is simply the amount stated on the face of the bill. So, a $100 dollar bill will always have a nominal value of $100 in the future, and always has had a nominal value of $100 in the past. The nominal value of anything is completely independent of inflation.

The real value of an asset measures its buying power and can be different from the nominal value in the past or in the future, as the real value accounts for the effects of inflation in the past or in the future. The real value of something can only be defined in relative terms. So, calculating the real value of something requires a referrence point in time.