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ICT Deflation and Growth: A Sensitivity Analysis
Considers the impact on UK growth of using different indicators for ICT prices (e.g. UK vs. US PPIs), as a sensitivity analysis.
This article presents one strand of research undertaken at the ONS about the impact of different treatments of information and communication technology (ICT) goods and services on measures of UK economic growth. It primarily considers the impact on UK growth of using different indicators for ICT prices (e.g. UK vs. US PPIs), as a sensitivity analysis.
The rapid quality improvements in ICT goods present economic statisticians with a number of difficulties. In pricing the goods, conventional indices use the matched model approach and rely on pricing the same good each month. However, with ICT goods, there is considerable product change, with products dropping out of the basket. Replacement items often have quite different characteristics to the original item and the differences must be valued when assessing the change in price from the previous item.
Another issue raised is to correctly identify where the various ICT goods appear in the national accounts aggregates. ICT is a large and growing sector of the economy and some of its output falls in capital formation, which adds to GDP, and some in intermediate consumption, which does not. The correct allocation between the two categories is necessary to avoid biases on the level and growth of GDP.
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