GDP deflator

The GDP deflator is a price index of gross domestic product (GDP ) of a so-called implicit price index as the ratio of nominal (current prices ) and real ( price-adjusted) GDP is calculated:

The rate of change of the GDP deflator is a price change rate. There are other deflators, such as that of private consumption or export.

Function

The GDP deflator is used in economics to measure the price level and inflation. Unlike, say, the consumer price index, the GDP deflator reflects not only changes in the prices of a selected basket of goods, but the changes of all prices in the economy. For this reason, it is often preferred by scientists, whereas the consumer price index finds a stronger response in the media.

Example

Nominal GDP in Germany was reported to be € 2129.20 billion from the Federal Statistical Office in the " Preview 2003" for 2003. In 1995 prices, the GDP amounted to € 1987.70 billion. The GDP deflator is therefore calculated as follows:

Typically, this value is multiplied by 100: 107.1. For the base year (in this example 1995), always results in a value of 100.0 (1 X 100 ), since the real and nominal GDP in the base year is the same.

With the introduction of chain indices, the Federal Statistical Office is now differently. The time series for GDP in current prices are used as metrics expressed (at the time concerning the year 2000 equal to 100 ). With the help of chain indices, GDP is calculated ( also 2000 = 100) also as a price-adjusted series of index numbers. The ratio of the measured figure for nominal GDP and the appropriate price-adjusted measure of the GDP is then the implicit price index or the GDP deflator.

Criticism

The GDP deflator usually shows lower inflation than the consumer price index (CPI ), which only goes back in part to the use of the Paasche index. Real GDP growth is thereby substantially higher reported, as would be the case when using (or discounting through) the CPI, the price increases identifies in turn tend to be too high. For example, the nominal GDP of Germany is from 2007 to 2008 grew by 2.8 % ( 2422.9 → 2492.0 billion ) and the CPI increased by 2.6 %. Nevertheless, the Federal Statistical Office reported an increase of 1.3 %, as the GDP deflator rose by only 1.5%.

Another problem is reflected in the impact of oil price shocks. As included in the GDP deflator and the terms of trade, the deflator decreases when the oil price rises. As a result, real GDP increases due to rising oil prices, but falls below if prices stabilize or fall, as happened 1973-1975, 1979-1982 or 2007-2009.