Thursday, December 22, 2011

British Inflation 2.5%?

British growth was seemingly upwardly revised for the third quarter, to 0.6% from 0.5%. However, yearly growth was left unchanged at 0.5%. What's even more important, nominal growth was downwardly revised to only 3% for the year (from 3.3%). That means that for real growth to be 0.5%, inflation would have to be only 2.5%, even as the British consumer price index has increased at roughly 5%.

The price index for gross domestic purchases rose 3.1%, implying a 0.1% contraction. However, even 3.1% is significantly below the 5% consumer price index increase. In part, this is likely because the gross domestic purchase index is probably "chain-linked", that consistently yields lower results than the "fixed basket" approach of the CPI. In part, it could also reflect that the CPI includes the effects of the increase in the Value Added Tax, while the gross domestic purchases index excludes it.


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