The real and the nominal? Making inflationary adjustments to cost and other economic data

Abstract

Given the scarcity of cost data for health interventions, there has been substantial use of a relatively small number of existing studies to underpin policy development formulation. Intervention-specific cost and cost-effectiveness data have been used to plan overall budgets, to assess the relative efficiency of different interventions and to consider the resource requirements for programme implementation at both the local and national levels. Cost and cost-effectiveness comparisons have been made between these studies and general sources such as the World Bank’s World Development Report 1993. At the same time, information on key health sector variables, such as annual health expenditures, has been systematically compiled for more than two decades. The question of possible inflationary effects is becoming increasingly important as the original data on which these numbers are based ages. For example, cost figures from the mid-1980s require a 60% inflationary adjustment simply to maintain their real value in current dollars. This paper looks at methods to adjust cost data to account for inflation and discusses the difference between real or constant and nominal or current values. These methods are also used to make inflationary adjustments to other types of economic data such as income.