§ Mr. Lawsonasked 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 223W 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 quarter … … 75.2 12.9 72.4 12.2 2nd quarter … … 79.7 15.9 74.1 13.7 3rd quarter … … 81.7 17.0 80.7 19.9 4th quarter … … 75.4 18.2 86.0 22.2 1975–1st quarter … … 90.5 20.3 92.9 28.3 2nd quarter … … 99.1 24.3 97.2 31.2 3rd quarter … … 103.4 26.5 102.6 27.1 4th quarter … … 107.0 25.3 107.2 24.7 1976–1st quarter … … 110.9 22.5 108.7 17.0 2nd quarter … … 114.9 16.0 112.5 15.7 3rd quarter … … 117.6 13.7 115.7 12.8 4th quarter … … 123.0 15.0 119.9 11.8 1977–1st quarter … … 129.2 16.5 122.1 12.3 2nd quarter … … 134.9 17.4 124.9 11.0 3rd quarter … … 137.0 16.5 129.4 11.8 4th quarter … … 139.0 13.0 131.5 9.7 1978–1st quarter … … 141.4 9.5 135.7 11.0 2nd quarter … … 145.3 7.7 137.9 10.4 3rd quarter … … 147.8 7.9 n.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.