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Food Prices

Volume 986: debated on Wednesday 18 June 1980

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asked the Chancellor of the Exchequer what, according to the Treasury model, is the percentage increase in the price of food after (a) one year and (b) four years, as a result of a 10 per cent., devaluation of sterling, all other things being equal.

Reference to section 15 of the Treasury's macroeconomic model technical manual (October 1979), and the relevant equations, suggests that the percentage increase in the price of food on the level of 1980 Q1 following a devaluation of 10 per cent. would be approximately 1ยท5 to 2 per cent. all other things being equal. This increase is completed within a year of the devaluation. This is an estimate of the direct effect only and is calculated from a working relationship in the Treasury model which is subject to continuous revision. The assumption that other factors are unchanged is unrealistic.