GDPdeflator

The GDP deflator, or implicit price deflator for GDP, is a broad measure of the price level of all goods and services that are produced domestically in an economy. It is calculated as the ratio of nominal GDP to real GDP, multiplied by 100: GDP deflator = (Nominal GDP / Real GDP) × 100. Real GDP uses prices from a base year to remove the effect of price changes, while nominal GDP reflects current prices. Because it covers the entire output of the economy, the deflator provides a comprehensive view of price changes across the GDP basket.

In practice, the GDP deflator is used to convert nominal GDP into real GDP, enabling comparisons of economic output across different time periods. It also serves as a broad inflation indicator for the overall economy, complementing more narrowly focused price measures. The deflator differs from the consumer price index (CPI) in scope: the GDP deflator includes all domestically produced goods and services, including investment goods, government services, and exports, and excludes imports. Changes in the composition of GDP or in relative prices among its components can affect the deflator.

Calculation details often involve base-year pricing, but many agencies now publish chain-weighted measures that update weights to reflect evolving output shares. GDP deflator data are produced by national statistical agencies (in the United States, the Bureau of Economic Analysis) and are released periodically alongside nominal and real GDP figures. Limitations include sensitivity to changes in the economy’s composition and to large movements in specific components, which can influence the index independently of consumer experiences.