Recently, I was reading about an economic term that many people ignore but that really affects our wallets: deflating. And especially the meaning of deflactar the IRPF, which is the most relevant if you live in Spain.

You see, all of this became brutally important in 2022, when inflation surged to historic levels. I remember that in November of that year it was around 6.8% in Spain—figures we hadn’t seen in decades. Central banks began raising interest rates like never before, and people started to notice how their money was worth less every month. That’s the context in which this discussion arises.

But what does deflactar really mean? In basic economic terms, it’s an adjustment analysts make to compare values across different periods by removing the effect of inflation. Imagine your country produced 10 million in goods in one year, and 12 million the next year. At first glance, it looks like 20% growth, but if prices rose by 10%, then real growth was only 10%. That’s what a deflator does: it removes the noise of inflation to see the reality.

Now, the meaning of deflactar as applied to the IRPF is different. It refers to adjusting the tax brackets so that when your salary increases due to inflation, you don’t end up paying more taxes just because of that. Essentially, they’re trying to make sure you don’t lose purchasing power because of taxes.

What’s interesting is that in other countries this is already routine. The United States does it annually. France, the Nordic countries, and Germany also have similar systems. But in Spain, at the national level, it wasn’t done from 2008 until recently, although some autonomous communities began implementing it.

Those who support this measure argue that it’s fairness: if your pay rises because prices rise, why should you pay more taxes? That makes sense. But critics point out that it benefits higher earners more, precisely because of the system’s progressivity, and that it could also reduce public revenue for essential services such as healthcare or education.

In terms of investing, the meaning of deflactar the IRPF becomes important because if you have more money available, you’ll probably invest more. During those years of high inflation and elevated interest rates, the stock market fell especially hard in technology, while sectors like energy boomed. Gold was working as a safe haven. Treasury bonds became more attractive due to their inflation-adjusted yields.

The truth is that for the average person, the savings from deflactar the IRPF aren’t spectacular—we’re talking about hundreds of euros per year. But psychologically, it matters, because people feel that the government recognizes that inflation affects them.

The important thing is to understand that there’s no such thing as risk-free investing, and that during inflationary periods you have to be strategic: diversify across stocks, commodities, currencies, and bonds. Some look for assets that have historically held up well against inflation. Others take advantage of market dips to buy cheaply for the long term. But always with caution, because leverage in forex or gold’s short-term volatility can burn through your money quickly.

In the end, understanding the meaning of deflactar isn’t just an academic issue. It’s about recognizing how inflation affects you directly, how governments try to mitigate it, and how you can position your investments in that context. If you have clarity on this, you make better decisions with your money.