Inflationary Fiscal Expansion
Scott Sumner asked a simple question about the table I posted earlier: why did the GDP deflator spike up in Q1 and Q4 of 2011?
The deflator spike in Q1 clearly looks that the effect of the VAT rise, with the huge difference between NGDP at market prices and NGDP at basic prices.
Q4 is more interesting – and hence this short post.
The upward spike in the Q4 deflator seems to come from… government spending! The breakdown of GDP by expenditure has a big jump in nominal government final consumption spending – but with a much smaller increase in output; the data for general government final consumption are as follows (SAAR, ONS series NMRP, NRMY):
For the one quarter in 2011 where government spending actually rose significantly, it was mostly reflected in price rises, not an increase in output. Ahem.
There is probably a benign explanation for this; most likely it’s a statistical artefact which will get revised away as the ONS get better data. But it accounts for 1.2% of the 3.7% GDP deflator (annualized rates) in that quarter, which is significant.