Prices change over time – a concept known as “inflation”. Price inflation means that what £100 would have bought you in 1970 will not be the same as what £100 would buy you now. This is why we use inflation tools to adjust prices into “real terms”, so that we can compare the purchasing power of a given sum of money in two different time periods.
So, for example, £100 in 1970, if adjusted to today’s prices (in “real terms”), would be a higher amount as you could have bought more in 1970 with that sum of money than you could today. Generally speaking, if you adjust figures from earlier years to today’s prices, the number should get larger. This would not be the case if prices have fallen over the period in question, but this is quite unusual. However, there were some unusual movements in prices over the period of the Covid-19 pandemic, with an unusual fall in one of the main price indices, a topic which is explored further in this SPICe blog.
The SPICe inflation tool uses an index known as the “GDP deflator” to make the price adjustments. This is not the only price index available, but is the one most commonly used when considering government spending as it reflects prices across the whole economy. It is therefore the most appropriate deflator to use when looking at government budgets or spending.
The GDP deflator is published by HM Treasury and is updated regularly. It also includes forecasts for a five-year period. More detail on the construction and use of the GDP deflator can be found in HM Treasury’s GDP deflators: user guide. HM Treasury also provide some practical guidance on using the GDP deflator, including worked examples.
If you are more interested in how prices will affect individual consumers, then it is more appropriate to use the “Consumer Price Index” (CPI) measure of inflation as this reflects changes in prices for items most commonly purchased by individual consumers, rather than governments. An inflation tool based on the CPI is available on the Bank of England website.
Some top tips for using the GDP deflator:
- If you are changing figures from previous years to the present year, the numbers should generally get larger.
- The figures for earlier years are now expressed in “real terms”, but it is important that you specify what year’s prices you have adjusted to (for example, state “real terms, 2024-25 prices” if you have adjusted to 2024-25 prices). Don’t just say “real terms”.
Always state when you have made the calculations, as the GDP deflator is regularly updated and revised. For example, state “calculations made using HMT GDP deflator as at [date]”.
Inflation tool
The tool will create a table with all the calculations you perform, which can be downloaded as a CSV file. Simply hit the “Download Your Data” button.
How much would goods and services costing:
in cost in
Latest GDP deflators update: December 2025
| Cash year | Real terms year | Cash terms value | Real terms value |
|---|
How to use the tool
Worked example – has the budget increased?
If the government has a policy budget of £100 million in 2022-23 and £102 million in 2023-24, has this budget increased in real terms?
To find out, you have two options: inflate the first amount to 2023-24 prices or deflate the second amount to 2022-23 prices. Either way makes the amounts comparable in real terms.
To inflate £100 million to 2023-24 prices, enter the amount into the text box. Then select 2022-23 in the first drop down list and 2023-24 in the second drop down list then hit calculate.
To deflate £102 million to 2023-24 prices, enter the amount into the text box. Then select 2023-24 in the first drop down list and 2022-23 in the second drop down list then hit calculate.
When entering a value:
- make sure there are no commas separating the numbers as it will return a NaN value
- use the whole number, for example for 1.2 million enter 1200000 or for 1.2 billion enter 1200000000
Note: due to Covid-19, the GDP deflator shows atypical movement in 2021-22.