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UK Inflation Measures

After looking at nominal GDP at basic prices previously, Simon Wren-Lewis’ post on using the GDP deflator as the preferred inflation measure prompted some thoughts.

I’ve graphed here an adjusted version of the GDP deflator, aiming to avoid the VAT distortions by taking the difference between the rates of change of real GDP and nominal GDP at basic prices.  (The “true” GDP deflator measures the difference between output and nominal GDP at market prices, where market prices include VAT and other indirect taxes).

UK Inflation Measures

UK Inflation Measures

As expected, this does not show up any significant supply-side pressure since 2009, with the “GDP deflator ex taxes” measure only once spiking above 2% in the fourth quarter of 2010.

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Categories: Monetary Policy, UK GDP
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