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Inflation

Volume 959: debated on Wednesday 29 November 1978

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asked the Chancellor of the Exchequer (1) what is the rate of inflation, over the latest available 12-month period, as defined by the general gross domestic product price deflator;(2) if he will provide a table showing, for each quarter since the first quarter of 1974, the annual rate of inflation as

defined by (

a) the general index of retail prices and ( b) the general gross domestic product price deflator, using the base of 1975 = 100 in each case; and if he will state the reason for any discrepancy between these two measures of inflation.

General index of retail prices*

Implied deflator for gross domestic product at factor cost

1975=100

Percentage increase on corresponding quarter of preceding year

1975=100

Percentage increase on corresponding quarter of preceding year

1974–1st quarter75·212·972·412·2
2nd quarter79·715·974·113·7
3rd quarter81·717·080·719·9
4th quarter75·418·286·022·2
1975–1st quarter90·520·392·928·3
2nd quarter99·124·397·231·2
3rd quarter103·426·5102·627·1
4th quarter107·025·3107·224·7
1976–1st quarter110·922·5108·717·0
2nd quarter114·916·0112·515·7
3rd quarter117·613·7115·712·8
4th quarter123·015·0119·911·8
1977–1st quarter129·216·5122·112·3
2nd quarter134·917·4124·911·0
3rd quarter137·016·5129·411·8
4th quarter139·013·0131·59·7
1978–1st quarter141·49·5135·711·0
2nd quarter145·37·7137·910·4
3rd quarter147·87·9n.a.n.a.
n.a. = Not available.

*Not seasonally adjusted.

†Seasonally adjusted implied index of total home costs.

Source:Economic Trends, October 1978.

There is no discrepancy between these two measures because they apply to different things. The retail price index is a direct measure of price changes of goods and services purchased by households. The gdp deflator covers the whole economy and is an implied index obtained by dividing the current price estimates of gdp at factor cost by the corresponding estimates at constant prices. It is, therefore, affected by changes in the"mix"of expenditure components which together make up gdp, and by any estimation errors in either the current or constant price series. Since gdp measures domestic output, the implied deflator does not directly reflect changes in import prices; and since the deflator is based on estimates valued at factor cost it also excludes the direct effects of any changes in rates of taxes on expenditure.