GDP Price Deflator
Candlefocus EditorThe GDP price deflator is an economic indicator used to measure changes in the price of all the goods and services produced in a given country’s economy over a given period of time. It offers a more comprehensive measure of inflation than the more commonly known Consumer Price Index (CPI) as it is not based on a predetermined basket of goods. By including the GDP price deflator, economists are able to compare levels of real economic activity from year to year.
The GDP price deflator is calculated by taking nominal GDP, which is the total of final goods and services produced in an economy during a period of time, and adjusting it for price changes by dividing it by the current price level. The resulting ratio is then multiplied by 100 to get the GDP price deflator. In comparison, the CPI uses a fixed basket of goods to measure price levels, which may not include all goods and services included in the GDP price deflator.
The GDP price deflator is an indicator for economists of inflation levels in the country. It acts as a reliable measure of economic fluctuations as it reflects production and consumption across all economic sectors. It also gives a better reflection of economic activities as it measures the cost of both domestically and domestically produced goods and services. Additionally, the GDP price deflator is released quarterly, allowing economists to make comparisons of economic performance over shorter periods of time.
Overall, the GDP price deflator is an important economic indicator that offers an accurate measure of economic movements and inflation. It goes beyond the commonly used CPI, providing a comprehensive measure of the prices of all goods and services produced in an economy and allowing economists to make comparison between levels of real economic activity from year to year.