Measuring ‘Real ’ values: Taking account of price changes over time in statistical analysis Summary

Deflators are used widely in the production of official statistics within government, and in analysis using official statistics outside government, to remove the effects of changes in prices from a time series. This enables statistics to be compared across time in ‘real terms’. The Office for National Statistics (ONS) collects a huge volume of data on prices and these are used, alongside other information, to produce many aggregate series that are used as deflators. This is a complex process as prices data are collected from many people – producers, consumers, retailers and traders – and aggregated in different ways for different purposes and perspectives. Experienced users debate long and hard about the underpinning formulae to use when aggregating these deflator series, and inexperienced users may need some expert guidance on how to choose the best series for their particular purpose. This short report investigates why deflators are important in the production of official statistics (Chapter 1), what statistics are available for use as deflators (Chapter 2), and how their use could be improved (Chapter 3). In addition, Annex A is illustrative of the sorts of questions fuller, more formal guidance from producers should address to help improve the use of deflators. Main findings and recommendations Taking account of price changes is important. When comparing statistics over time, taking account of price changes is important as it informs our analysis of how government spends its money, how government policy is evaluated and how well-off we feel. For example, it is an essential part of: Tracking changes in poverty over time; Determining rail fare changes; and Analysing real terms healthcare spending over time. Failing to take account of price changes can lead to misleading conclusions