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Retail Prices

Volume 940: debated on Monday 28 November 1977

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asked the Chancellor of the Exchequer what estimate he has made of the effects of the changing external value of the £ sterling and changes in taxation on the index of retail prices between the first quarter of 1974 and the third quarter of 1977 and the second quarter of 1970 and the first quarter of 1974, respectively.

The effective exchange rate of the £ sterling fell by 16 per cent. between the second quarter of 1970 and the first quarter of 1974; this period included a devaluation of the dollar in the summer of 1971. Between

quarter of 1974 and the third quarter of 1977, respectively.

Gross domestic fixed capital formation is not measured in terms of 1971 prices. Percentage changes on the basis of 1970 prices are given below. Since figures for the third quarter of 1977 are not yet available changes up to the second quarter are shown.the first quarter of 1974 and the third quarter of 1977 the rate fell by 25 per cent. Using the rule of thumb that the direct impact of a 1 per cent. depreciation adds ¼ per cent. to the RPI, the effect of the depreciation between the second quarter of 1970 and the first quarter of 1974 was to add 4 per cent. to retail prices and of that between the first quarter of 1974 and the third quarter of 1977, to add 5 per cent. to retail prices. The corresponding effects from changes in indirect taxation were +1 per cent. and +7 per cent. respectively. These figures include the revalorisation of specific duties which accounted for much of the increase in indirect taxation in the latter period.