How to adjust for inflation

This guide is one in a series on different aspects of statistical literacy. The others can be found in the House of Commons Library's Good Information Toolkit.

What is inflation?

Inflation is a general increase in prices over time. This usually refers to the average prices consumers pay on a typical range of products and services. It can also refer to the overall change in prices in an economy, including those faced by businesses and the public sector.

The usual way of presenting inflation statistics is to show how much this average price level has changed over a year. For example, the percentage change in the price level in September this year compared with September of the previous year. You will often see this described as the ‘inflation rate’.

Inflation statistics can also be used to measure changes in prices over a longer time period.

Why you might need to adjust for inflation?

Inflation affects the purchasing power of money over time. For example, £1 in 1950 could buy you more than £1 today can, as prices have gone up since 1950. Put another way, the same amount of money will buy you fewer things in the future than it does today.

To enable us to compare what something is worth over time, we need to adjust for differences in the purchasing power of money. If we can strip out inflation, we get a better understanding of the ‘real’ value of money is over time – what we can actually buy with money.

For example, comparing the average wage today with 20 years ago does not tell you how much you could buy with that wage. If, hypothetically, your wage in cash terms has gone up by 15%, but prices have gone up by 30%, the real-terms value of your wage has fallen.

Different inflation measures and their uses

To measure inflation, we look at the prices of a representative sample of products and services and calculate the average change in their prices. What goes into this sample depends on whether we are looking at the change in prices for consumers, businesses or the whole economy.

These measurements of inflation are sometimes called ‘deflators’ as we can use them to undo the effect of inflation on prices.

Consumers: CPI, CPIH and RPI

The most prominent inflation figures relate to prices that affect consumers – that is members of the public, rather than, for example, businesses. In the UK, these are calculated and produced by the Office for National Statistics (ONS).

The most prominent consumer price measure is the consumer prices index (CPI). The CPI is what the Bank of England is required to target, as part of the remit set by government to keep inflation low and stable.

Other measures of consumer prices include the CPIH, which is similar to the CPI but includes an additional estimate of owner-occupiers’ housing costs (the H), and the retail prices index (RPI), which used to be the most prominent inflation measure but is now no longer classified as an accredited official statistic because it has technical deficiencies in how it is calculated.

The CPI is used to increase, or uprate, many state benefits and private contracts (such as mobile phone bills). The RPI is still used to uprate some things, including interest rates on student loans.

Economy as a whole: GDP deflator

Another prominent measure of inflation is the gross domestic product (GDP) deflator. This measures inflation for the whole of the UK economy. It therefore has a broader scope than measures of consumer prices, such as the CPI, which only look at prices faced by individuals.

The GDP deflator captures the prices of goods and services purchased by consumers, businesses and the public sector, as well as export prices (though not import prices). In other words, it measures the prices of all goods and services produced in the UK, matching the scope of GDP, an important economic indicator, representing the value of all goods and services produced in a country.

The GDP deflator is normally used to adjust for inflation of national income and public expenditure (where the focus is wider than just the prices faced by consumers alone). For example, budgets of government departments can be adjusted for inflation by using the GDP deflator.

The GDP deflator is technically an ‘implied deflator’ in that it does not directly measure prices, but is calculated by dividing GDP in current prices by GDP in constant prices (which measures ‘volume’, reflecting the change in the actual amount of goods and services produced, excluding price changes).

Others

There are many other price measures, some specific like those in the construction material price indices, and some that are more general. For example, producer price indices and services producer price indices measure price changes of goods and services bought and sold by UK businesses. For more on the different types of deflators, see the ONS article, Deflators and how we use them in economic estimates.

How inflation is measured CPI

The CPI is based on the cost of a representative basket of goods and services for the average consumer in the UK. It is calculated by the ONS. It is produced by collecting prices of over 700 goods and services in many locations across the country, and online, every month. As of 2025, the ONS collects a total of approximately 180,000 individual prices.

Inflation rates for individuals will differ from these figures, depending on their spending patterns and prices they pay. For example, a relatively high proportion of spending among lower-income households is on food, so they face a higher effective inflation rate than others when food prices rise faster than average inflation.

GDP deflator

The way the GDP deflator is calculated is more complicated. It is a weighted average of the price changes of the different parts of GDP, such as consumer spending, investment and government spending. The weight of each of these components corresponds to how much they contribute to GDP.

Difference between price level and price change (inflation)

The distinction between price levels and price changes is important. Take the CPI measure. The CPI itself is an index that represents an average level of prices.

For example, the CPI might be 120.0 in July of year 1 and 132.0 in July of year 2: this reflects the change in the price level.

The change in prices, the inflation rate, from July of year 1 to July of year 2 is 10.0%: this is the inflation rate.

The time series of the CPI – representing the price level – allows you to calculate price changes over different periods of time. For example, changes in the prices over three months, three years, 10 years and so on.

An index value on its own means nothing. For example, 120.0 in itself is meaningless. However, it becomes useful when comparing it with a separate index value for a different time period, such as 132.0; we can then measure the change over time. For more on index values see the statistical literacy guide Time series index numbers.

How to adjust for inflation Select the inflation measure

If the money series you are adjusting relate to individuals, such as wages or government benefit rates, you should usually use the CPI, as it accounts for changes in the purchasing power of individuals.

If you have a money series of government spending, then the GDP deflator is likely the most appropriate one to use, as this relates to spending across the economy.

Find the inflation index values and time periods you need

If you use the CPI, you can obtain a CPI series showing price levels back to 1988 from the ONS (and it publishes further inflation information in its consumer price inflation tables). These are available on a monthly, quarterly and annual basis. Match this to the data you are adjusting. For example, if you have annual figures from 2010 to 2024, then select annual CPI figures from 2010 to 2024.

If you are using the GDP deflator, you can get annual data on a financial year and calendar year basis from the Treasury (the ONS series YBGB gives the GDP deflator outturn data). This also includes forecasts from the Office for Budget Responsibility, the UK’s independent public finances watchdog, which provides official forecasts for the economy that are used by the Chancellor.

Adjust for inflation

Once you have selected your inflation measure and collected the data, you need to make the calculations to adjust your data for inflation.

The graphic above shows the different figures that are involved in such a calculation. Let’s say you have a data series in cash terms and want to convert the cash figure in a particular year (‘Cash figure for year A’ in the graphic) into what it would be worth in year T’s prices (‘Real figure for year A’). To do this:

Real figure for year A = Cash figure for year A x (CPI year T/CPI year A)

Example

Let’s take an example of average wages in the UK. The average UK weekly wage of a full-time employee was £527 in April 2015 and £767 in April 2025.

But to compare the real-terms change in this average wage – in order to gauge the purchasing power of this money – we need to adjust for inflation. In this case we would use CPI, as wages relate to an individual’s spending power.

We want to work out what the average wage of April 2015 is in the prices of April 2025. To do this we need to work out how much prices have increased by over this time period.

Using the table above, we can work this out as follows:

• Apr 2015: average prices are 99.9 (on CPI measure)
• Apr 2025: average prices are 138.2 (on CPI measure)
• Prices increased by 138.2 divided by 99.9. The ratio of prices is 1.38. This means that prices increased by 38% between April 2015 and April 2025.

We then apply this ‘price ratio’ or ‘inflation factor’ (1.38) to the cash value of wages in April 2015. This gives us the value of wages in April 2025 prices. The calculation steps are:

• Apr 2015 wage: £527
• Inflation factor Apr 2025/Apr 2015 = 1.38
• Adjusting wage of Apr 2015: £527 multiplied by 1.38 = £729
• The average wage of Apr 2015 in Apr 2025 prices is £729

We can now compare the average wages of 2015 and 2025. This shows that in April 2025 prices, average wages were:

• Apr 2015: £729
• Apr 2025: £767, a real terms change of +5%

In summary, as shown in table above, in cash terms the average wage has gone up a lot, +45%, from 2015 to 2025. However, once adjusted for inflation, the average wage was only +5% from 2015 to 2025.

• Adjust for inflation: Multiple time periods

To calculate a time series, just repeat the calculation for each year of the series. For example, the table below takes the same statistics as above for average wages from 2015 to 2025 but shows every year. This shows the trend in real wages over this 10-year period.

The calculation, for example, for turning the April 2018 cash wage of £568 into a real terms figure (in April 2025 prices) is as follows (corresponding to the green line in the table):

• Real wage (Apr 2025 prices) = £568 x (CPI of Apr 2025/CPI of Apr 2018)
• Real wage (Apr 2025 prices) = £568 x (138.2/105.4)
• Real wage (Apr 2025 prices) = £568 x 1.311 = £745

Sources: ONS, ASHE data, Employee earnings in the UK: 2025, figure 1 and ONS, series D7BT (CPI)

Further information

House of Commons Library, Inflation in the UK: Economic indicators

Office for National Statistics, What is inflation and how do we calculate it?

Office for National Statistics, Deflators and how we use them in economic estimates

Office for National Statistics, Consumer price inflation basket of goods and services: 2025

Office for National Statistics, Measuring price changes of the UK national accounts : February 2023

Reserve Bank of Australia, Inflation and its Measurement

Congressional Research Service, Introduction to U.S. Economy: Inflation