A few years ago, when inflation started soaring in Europa and the United States, I began to see economists and politicians talking about a word that sounded strange everywhere: deflactar. At first, it seemed something very technical, but in reality it’s simpler than it sounds and has real implications for our wallets.

The thing is, when prices rise, comparing numbers from one year to the next becomes a mess. Imagine your salary went from 30,000 to 33,000 euros. That sounds good, right? But if prices increased by 10% over that period, your purchasing power actually fell. That’s where deflactar comes in: it’s basically an adjustment we make to remove inflation “noise” and see what’s really going on with the economy.

The deflactar definition is simple: it’s a figure that expresses how prices changed over a period, allowing you to compare real values instead of inflated numbers. Economists use it to “deflate” data and see real growth. For example, if nominal GDP grew from 10 to 12 million but prices rose by 10%, then real growth was only 10%, not 20%.

Now, in Spain there was intense debate about applying this to IRPF, the income tax. The idea was to adjust tax brackets according to inflation so people wouldn’t end up paying more taxes just because their nominal salaries had increased. It makes sense: if you earn more money but prices also go up, you shouldn’t lose purchasing power just because of taxes. In other countries like the United States, France, and the Nordics, they already do this regularly. Germany does it every two years. But in Spain, at the national level, it hadn’t been applied since 2008.

What’s interesting is that those who support the measure say it protects families’ purchasing power, while critics argue that it benefits people who earn more, due to the progressive nature of the tax. In addition, some claim that regaining purchasing power could boost demand and, with it, prices—the opposite of what’s intended.

From the investment side, all of this matters because if taxpayers have more money available after deflacting IRPF, they potentially invest more. In scenarios with high inflation and high interest rates, strategies change. Gold becomes attractive as a safe haven. Stocks suffer because credit becomes more expensive for companies, although some sectors like energy may do well. Forex moves with changes in exchange rates driven by inflation. And diversification becomes critical because inflation affects each asset differently.

What I learned is that even though deflacting IRPF sounds important, the real benefit for an average person is modest—just a few hundred euros. So although it’s a measure that improves purchasing power, it isn’t the decisive factor in a country’s investment decisions. What matters is understanding how inflation and fiscal adjustments reshape the investment landscape and adapting accordingly.