When looking at changes in monetary amounts over time it can be difficult to see whether more or less money has been spent as the real change is often masked by the effects of inflation. Therefore, it is useful to strip out the effects of inflation so the real change in expenditure can be examined, and one way to do this is by use of a deflator.
In this report the Gross Domestic Product (GDP) deflator is used. The GDP deflator is a much broader price index than the Consumer Price Index (CPI), Retail Price Index (RPI) or Retail Price Index excluding mortgage interest payments (RPIX), which only measure consumer prices. This is because it reflects the prices of all domestically produced goods and services in the economy. The GDP deflator also includes the prices of investment goods, government services and exports, and excludes the price of UK imports. The wider coverage of the GDP deflator makes it more appropriate for deflating public expenditure series.
The GDP deflator can be viewed as a measure of general inflation in the domestic economy which can be described as a measure of price changes over time. The deflator is usually expressed in terms of an index, (i.e. a time series of index numbers), and percentage changes on the previous year are also usually shown.
It reflects movements of hundreds of separate deflators for the individual expenditure components of GDP, which includes expenditure on such items as bread, investment in computers, imports of aircraft, and exports of consultancy services.
The time series for the GDP deflator allows for the effects of changes in price (inflation) to be removed so a time series of data, in this case adult social care expenditure, can be expressed in ‘real’ terms.
Information on GDP deflators is sourced from HM Treasury. These are updated quarterly, and the GDP deflators used throughout this report were National Accounts figures from the ONS September 2020 published 1st October 2020 and are given in the following table.
Table 4: GDP deflator at market prices and per cent change on previous year