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3. Annex A: How to use the GDP deflator series: Practical examples

The following is an extract from a deflator series and provides examples of how the series can be used.

*  Note:  Figures for GDP are not forecast in this series

• Calculating Inflation Between Different years
  
  

In the above example there is a 3.07% increase in prices between 1995-96 and 1996-97.

i.e. (97.589 - 94.679 ) x 100 = 3.07%
               94.679

Q. What was the cumulative inflation between 1992-93 and 1997-98?

A. 13.18% increase between 1992-93 and 1997-98.

i.e. (100 - 88.358 ) x 100 = 13.18%
            88.358

• Inflating Figures

Q. How much would £7.4 million in 1995-96 prices be worth in 1999-2000 prices ?

A. Use the GDP deflator series which shows that in 1999-2000 prices are higher than in 1995 - 96 by a ratio of 1.11 (105.063 ÷ 94.679).

i.e £7.4m x 105.063 = £8.21m
                  94.679

Therefore £7.4m in 1995-96 prices is equivalent to £8.21m in 1999-2000 prices.

• Deflating Figures
  

Q. How much would £85.32 million in 1997-98 prices have been worth in 1993-94?

A. Prices are lower in 1993-94 than 1997-98 by a factor of 0.907 (90.704 ÷ 100)

i.e. £85.32m x 90.704 = £77.39m
                          100

Therefore £85.32m in 1997-1998 prices is equivalent to £77.39m in 1993-94 prices.

• Changing the reference year
  

It may be necessary to change the reference year you are working from.

The easiest way to achieve this is to divide all the deflators by the value of the deflator in the new

reference year, then multiply by 100.

E.g. to rebase the series so that 1995-96 is the reference year (i.e equal to 100)

1992-93 88.358 / 94.679 x 100 = 93.324

1993-94 90.704 / 94.679 x 100 = 95.802

1994-95 92.000 / 94.679 x 100 = 97.170

1995-96 94.679 / 94.679 x 100 = 100.000

1996-97 97.589 / 94.679 x 100 = 103.074

1997-98 100.000 / 94.679 x 100 = 105.620

1998-99 102.500 / 94.679 x 100 = 108.261

1999-00 105.063 / 94.679 x 100 = 110.968

Producing a real terms series

To produce a real terms series, divide each value in the series by the given deflator for that year, and then multiply by the deflator for the year that you wish to be the reference year.

E.g. Consider the following example which shows expenditure on X for 1993-94 to 1997-98, and suppose we wish to create a real terms series, with 1995-96 as the reference year.

For 1993-94, divide £204m by 90.704 and multiply by 94.679 gives:

£204m x 94.679 = £212.94

          90.704

Similarly for the other years gives:

*Note that as 1995-96 is the reference year, actual expenditure is equal to real terms expenditure

How To Calculate a Real Terms Growth Rate

Following on from the example above you may wish to calculate a real terms growth rate. This will show year on year percentage growth rate in the real terms expenditure series. To get a real terms growth series simply calculate the year on year percentage growth rate of the real terms expenditure figures.

i.e. For 1994-95

(225.38 - 212.94) x 100

        212.94

Similarly for the other years gives:

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Last Updated June 22, 1999 by Russell Coleman

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