alt Hacker News> What does this actually mean? Every time I try to wrap my head around why it's bad e.g. for a business to make a constant profit, rather than an increasing profit;
It’s very simple.
If you make $1M in profit in a year and the following year you also make $1M but inflation was 3%, you earned 3% less money than you did the year before. The nominal profit was the same but the real profit was lower.
To earn the same real return with 3% inflation you would need to earn $1.03M the year after you earn $1M. If your profits grew less than inflation, you made less money and your company is worth less as a result.
Monetary policy people figures out that a small amount of controlled inflation that incentivizes investing is better than deflation which encourages people to hoard cash. Some people disagree with that.
That's not actual growth though, that's just measuring the same business in a different unit worth 0.97 of the old unit. The business can be the same size.