GDP Deflator : definition, formula and the differences with CPI


WHAT :: What is GDP Deflator ?
GDP Deflator measures price changes in current year compared to those in a base year, for all goods and services produced within the country and is used to convert nominal GDP to real GDP or GDP at constant prices

HOW :: How to calculate GDP Deflator ?
GDP Deflator includes prices for all goods and services produced domestically.
that are what householders, businesses, the government, foreigners, … are buying.
GDP Deflator DOES NOT include imports and their price changes.  

Formula :
GDP Deflator = Current Price ÷ Base Year Price
GDP Deflator = Nominal GDP ÷ Real GDP

WHAT 2 : What are the differences between GDP Deflator and CPI (Consumer Price Index) ?
  • GDP deflator reflects the prices of all goods and services produced domestically, whereas CPI reflects the prices of a representative basket of all goods and services bought by the consumers.
  • GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year, whereas CPI compares the price of a fixed basket of goods and services to the price of the basket in the base year.
  • GDP deflator receives rather less attention than the CPI, because the values of GDP deflator tend to be available later than those of CPI.
  • GDP Deflator compared to the CPI : GDP deflator is normally lower and grows more slowly than the CPI.
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