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Cash wages represent the actual amount of money employees receive in exchange for their work.
They are often called 'nominal wages' because they are not adjusted for inflation.
When looking at salary trends, it's useful to distinguish between cash wages and real wages, as the two can tell quite different stories about purchasing power.
In our exercise, cash wages increased by 8% over the past five years.
This indicates that, in nominal terms, employees are earning more now than they were five years ago.
However, just looking at cash wages can be misleading if inflation is also increasing.
High inflation can erode the purchasing power of these cash wage increases.

Real wages help us understand the buying power of an individual's earnings.
They are calculated by adjusting cash wages for inflation.
The formula used to calculate real wages is: \[ \text{Real Wages} = \frac{\text{Cash Wages}}{\text{CPI Index}} \] The idea is that even if your cash wages go up, your real wages might go down if the cost of living (represented by the CPI) increases faster.
In our exercise, real wages decreased by 7% even though cash wages increased by 8%.
This tells us that inflation is eroding the value of the wage increase employees received.
The result is that employees can buy less with their wages now than they could five years ago, even though they nominally earn more.

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
It is typically measured as an annual percentage increase.
A key indicator used to measure inflation is the Consumer Price Index (CPI).
CPI calculates the average change over time in the prices paid by consumers for a basket of goods and services.
To understand the impact of inflation on wages, we use the CPI to adjust nominal wages to find real wages.
In our exercise, we calculated that the CPI increased by approximately 16.13% over the past five years.
This substantial rise in CPI explains why real wages decreased, even though cash wages showed a positive increase.