Overview and How to Calculate GDP Deflator
- An inflation gauge is the GDP deflator, often known as the implicit price deflator.
- It is the difference between the value of goods and services an economy produces in a given year at the going rate and the going rate in the base year.
- This ratio demonstrates the degree to which rising prices rather than increased output is to blame for the rise in the gross domestic product.
- As opposed to the constrained commodity baskets for the wholesale or consumer price indices, the deflator includes the full spectrum of commodities and services generated in the economy, making it a more accurate indicator of inflation.
- The GDP price deflator measures the difference between real and nominal GDP.
- Real GDP differs from nominal GDP because the latter does not account for inflation.
What is the GDP deflator, and what does it measure?
GDP Deflator is the ratio of a country's economy's value of goods and services generated in a particular year at current prices to base year prices. It is calculated by multiplying the nominal GDP by 100 and dividing it by the real GDP.