Is it actually a raise?
The headline percentage is the easy part. A rise below inflation is a pay cut, and that comparison is never in the letter.
A raise, in real terms
The headline percentage is the easy part. Whether it kept pace with inflation is the question that decides if you are better off.
How this is calculated
change = (new − current) ÷ current
real change = (1 + change) ÷ (1 + inflation) − 1
Dividing rather than subtracting matters: a 3% rise against 4.2% inflation is a real-terms fall of 1.15%, not 1.2%. The difference is small and the method is the correct one.
The break-even figure is what your current pay would need to become simply to buy what it bought before.
A rise below inflation is a pay cut
It rarely feels like one. The number went up, the letter was positive, and the comparison that matters is never in the letter.
A 3% rise in a year of 5% inflation leaves you about 1.9% worse off. Stating that plainly is the single most useful thing this calculator does, and it is the reason to put a figure in the inflation box even when you would rather not.
The base matters more than the increment
Percentage rises compound from wherever you already are. Two people doing the same work, one starting 5,000 lower, stay roughly 5,000 apart in proportional terms for as long as both get the same percentage — the gap widens in cash every year.
This is why a starting salary follows people for a decade, and why the largest single increase most people get is from changing employer rather than from any annual review.
What to compare against
Use a published inflation figure for the period between the two salaries rather than an annual rate, if the gap was not exactly a year. For a promotion after eighteen months, an annual rate understates what you needed to stand still.