A few years ago, when inflation surged in Europe and the United States, a term that many people probably didn’t know started to get a lot of attention: deflactar. And the truth is that understanding what deflactar is and how it affects your investments became quite important.

Basically, deflactar meaning has to do with adjusting economic figures to eliminate the noise created by inflation. Imagine your salary rose by 5%, but inflation was 3%. Did you really earn more? Not entirely. That’s the problem deflactar tries to solve: comparing real values by removing the effect of price changes.

In simple terms, a deflator is a number that expresses how prices changed over a period. Economists use it to “deflate” or “inflate” values, leaving only the real changes in volume. When you apply a deflator to a figure, that figure is called deflated.

Let’s look at a concrete example. A country produces 10 million in goods and services in year 1. The following year, it rises to 12 million. At first glance, that looks like 20% growth. But if prices increased by 10% over that same period, the reality is that the economy only grew by 10%. That’s the difference between real GDP vs el PIB nominal. The GDP price deflator helps measure that gap.

Now, in Spain some years ago, there was a lot of debate about deflacting the IRPF, which is something else. It refers to adjusting the tax brackets of the personal income tax so that people don’t lose purchasing power when inflation rises. Basically, if your salary increases but only due to inflation, you shouldn’t pay more taxes. Makes sense, doesn’t it? In the United States, France, and the Nordic countries, they already do it annually. In Germany, every two years. In Spain, it hadn’t been done at the national level for years.

Supporters say it’s fair: it prevents you from losing money to inflation. Critics argue that it benefits higher earners more (because the IRPF is progressive) and that it could reduce government revenue for public services.

But here’s the interesting part for investors. If the IRPF is deflated, people have more disposable income. That could boost demand for investments. So what should you do in scenarios of high inflation and restrictive fiscal policies?

Some options worth considering: stocks, real estate, and commodities have historically generated positive returns during periods of high inflation. Gold, for example, is considered a safe haven when everything’s rising in price. Bonds and Treasury securities can also be interesting because they’re designed to adjust for inflation. And diversification is always key: not all assets behave the same way under different conditions.

In the stock market, inflation and high interest rates are usually negative because they increase financing costs for companies. But not everyone suffers equally. Energy companies, for example, can do well in these scenarios, while the tech sector may struggle. If you have liquidity and patience, market dips can be opportunities to buy cheap, because historically the market recovers in the long term.

Forex can also be interesting: when inflation is high, currencies depreciate, creating opportunities. But it’s volatile and requires experience.

The important thing to remember is that deflactar meaning in the fiscal context isn’t a silver bullet. The real economic benefits for an average person are usually modest—just a few hundred euros. So don’t expect this measure by itself to revolutionize your investment capacity, but it does add up within the overall context of your financial strategy.