Inflation Adjusted HMRC Regional Trade Statistics for Scotland: Methodology

HMRC publish Regional Trade in Goods Statistics (RTS) data on two bases: the nominal value of traded goods in current prices (i.e. the monetary value of the commodities at the time of export or import), and the net mass, or physical quantity, of commodities which are exported or imported.

The value of trade changes over time due to changes in both the quantity of goods which are exported or imported and in the prices of those goods. Changes in the value of trade can be strongly impacted by changes in prices. For example, when there are high levels of price inflation, the value of trade can increase when the quantity of traded goods remains unchanged or even when it falls.

There is widespread interest in estimating how the underlying quantity of trade is changing without the impacts of price inflation. Such estimates are referred to as being in volume terms, or in real terms. Many headline economic indicators, such as Gross Domestic Product, are routinely presented in real terms. In this release, ‘real terms’ refers to CVM.

The data in RTS on the net mass of traded goods can be used to produce estimates of trade in volume terms. Because the prices are different for each type of commodity in the data, the net mass values cannot simply be added together to produce a measure of total imports or exports. For example, if the volume of trade in wood was added together with the volume of trade in microchips, the contribution of the volume of wood would overwhelm the contribution of the volume of microchips. This is undesirable, especially since the price per kilo of microchips would be significantly higher. Instead, the quantities of each commodity category are weighted based on their price, then are divided by the average value for the series, leaving only the relative change in quantity which can be compared with other series containing different products, aggregations and trading partners.  

To ensure that the weights reflect changes in the composition of trade or the relative prices between commodities, these are updated each year. The resulting measures of trade in real terms are known as annually chained volume measures (CVMs). It should be noted that these changes in the composition of trade can only be controlled for at SITC (Standard Industrial Trade Classification) 2-digit level reflecting the level of product granularity available through RTS.

The results are presented as an index of the level of trade in real terms, meaning that only changes in volume relative to the preceding period are presented. An index shows proportional changes, so an index of 160 relative to a base period of 100 shows an increase of 60% compared to the base period. In this report, the reference year of 2018 has been selected as a relatively stable point in time prior to the impacts of the COVID-19 pandemic. 

Figure 1 below shows the differences between the CVM and the current price (value) series for Scotland’s goods exports excluding oil, gas & erratic series (see Exclusions). The two series have noticeably diverged since the start of 2022.

Figure 1. The volume of Scotland’s international goods exports has decreased since 2018 but increased in value over this period

Index of Scotland’s international goods exports in real terms (CVM) and current prices (value), 2017 Q1 to 2024 Q1. Average of year ending Q1 2018 = 100.