What Is the GDP Price Deflator?

The gross domesticꦦ product (GDP) price ♔deflator measures the amount by which total output is reduced by inflation.

The GDP deflator formula includes the value of all final goods, including exports. It does not factor in the prices of imports. The 澳洲幸运5开奖号码历史查询:Bureau of Economic Analysis (BEA) uses the formula to track economic trends while accounting for inflation in the prices of goods and services produced in the United States.

The GDP deflator is very similar to the GDP price index except in its calculation.

Formula

To ca🃏lculate the GDP price deflator, divide the nominal GDP by the real GDP and multiply the result by 100.

澳洲幸运5开奖号码历史查询:Nominal GDP is the total value of goods and services produced during a specific period less the value of products made during production. Real GDP refers to the value of ൩goods and services produ𝔉ced in a year and adjusted for inflation.

GDP Price Deflator = (Nominal GDP ÷ Real GDP) × 100

GDP vs. GDP Price Deflator

GDP represents the total output of goods and services. It doesn't factor in the impact of inflation or rising prices. The GDP price deflator addresses this by showing the effect of price changes on 澳洲幸运5开奖号码历史查询:gross domestic product.

The price deflator formula establishes a 澳洲幸运5开奖号码历史查询:base year and compares current prices to the base year prices. It estimates the extent of price level changes, or 澳洲幸运5开奖号码历史查询:inflation, within the economy by tracking the prices paid by businesses, the government, and consumers.ꦐ

The BEA uses the GDP price deflator to report quarterly price changes from the preceding quarter. The real gross domestic product increased at an annual rate of 2.4% in the fourth quarter of 2024. In the third quarter, it increased by 3.1 %.

Example

Some companies may use the GDP price deflator to adjust their contract payments. It helps identify how much prices have inflated over time. The GDP price deflator measures price changes when comparing nominal to real GDP over several periods. 

Com﷽paring GDP to a previous year can be deceptive if prices change between periods. Without so𓃲me way to account for price changes, an economy that experiences price inflation would appear to be growing in productivity when it is growing only in dollar terms.

For example, suppose the U.S. produced $10 million worth of goods and 👍services in year one. In year two, the output or GDP increased to $12 million. It would appear that total output grew by 20% year-on🔴-year.

However, if prices rose by 10% from year one to year two, the $12 million GDP figure is inflated compared to year one. The economy only grew by 10% from year one to year two, accounting for inflation. The nominal GDP for year two is $12 million, while the country's real GDP is $11 million.

GDP Pr🧸ice Deflator vs. the Consumer Pric🌊e Index (CPI)

The consumer price index (CPI) is another inflation gauge. It measures the level of retail prices of goods and services over time and reflects changes to a consumer's 澳洲幸运5开奖号码历史查询:cost of living.

However, all CPI calculations are direct, which means the index is computed using prices of a fixed basket of goods and services. So the CPI misses changes in prices of goods outside of the basket. The GDP price deflator doesn't miss these because it measures the pric🦄e changes for all goods and services.

For instance, changes in consumption patterns or the introduction of new goods and services are automatically reflected in the deflator but not in the CPI. The GDP price deflator captures changes in an economy's consumption or investment patterns.

The Bottom Line

The gross domestic product is the total of all goods and services produced, and the number is tracked consist💯ently to♒ determine the health of the U.S. economy. The GDP price deflator measures how total output is reduced due to inflation.