What is the ‘GDP Price Deflator’
GDP price deflator is an economic metric that accounts for inflation by converting output measured at current prices into constant-dollar GDP. This specific deflator shows how much a change in the base year’s GDP relies upon changes in the price level. The GDP price deflator is also known as the “implicit price deflator.”
Explaining ‘GDP Price Deflator’
The GDP price deflator is an economic measure of inflation and is derived by dividing nominal GDP by real GDP, and then multiplying by 100. It is important because an economy’s nominal GPD differs from its real GDP in that nominal GDP includes inflation, while real GDP does not. Therefore, the GDP price deflator measures the difference between real GDP and nominal GDP, which can also be used as a measure for price inflation.
The GDP Price Deflator Versus the Consumer Price Index
There are indexes other than the GDP that help measure an economy’s inflation. Many of these alternatives are based on a fixed basket of goods. The consumer price index (CPI), for example, measures the level of retail prices of goods and services at a specific point in time. The CPI is considered by some to be one of the most relevant inflation measures in that it reflects any changes to a consumer’s cost of living.
Further Reading
- The financial and economic crisis of 2008: A systemic crisis of neoliberal capitalism – journals.sagepub.com [PDF]
- On the use of high-frequency economic information to anticipate the current quarter GDP: A study case for Mexico – www.sciencedirect.com [PDF]
- Financial deepening and economic development of Nigeria: An empirical investigation – papers.ssrn.com [PDF]
- Analysis of the effect of inflation, interest rates, and exchange rates on Gross Domestic Product (GDP) in Indonesia – repository.petra.ac.id [PDF]
- Financial intermediation and economic performance: historical evidence from five industrialized countries – www.jstor.org [PDF]
- Financial conditions indexes: A fresh look after the financial crisis – www.nber.org [PDF]
- Oil price shocks and the US economy: Where does the asymmetry originate? – www.iaee.org [PDF]
- Japan's financial crisis and economic stagnation – www.aeaweb.org [PDF]
