2.8.5 The standard discount rate is defined in real terms, and should therefore be applied to values which are also expressed in real terms, as opposed to nominal or cash values. This means that the anticipated effects of general inflation should be removed from all the figures before discounting.
2.8.6 The most common assumption is that inflation will affect all prices equally, in which case all values are expressed in constant prices at a given date. This is adequate in a majority of appraisals. The effect of expected future inflation in the general price level should be removed by deflating future cash flows by forecast levels of the relevant deflator. The GDP deflator is the appropriate measure of prices to use as a general deflator. See HM Treasury's Gross Domestic Product (GDP) Deflators: A User's Guide for latest figures and examples of use.
2.8.7 In some cases, it may be anticipated that a certain cost or benefit item, for example wage earnings or oil prices, will experience inflation at a significantly different rate to that of general inflation. In such circumstances, the cost or benefit stream for that item should be adjusted accordingly before discounting. Specialist advice should be sought about how to do this if necessary.