The GDP deflator, also called implicit price deflator, is a measure of inflation. It is the ratio of the value of goods and services an economy produces in a particular year at current prices to that of prices that prevailed during the base year.
This ratio helps show the extent to which the increase in gross domestic product has happened on account of higher prices rather than increase in output.
Since the deflator covers the entire range of goods and services produced in the economy — as against the limited commodity baskets for the wholesale or consumer price indices — it is seen as a more comprehensive measure of inflation
GDP price deflator measures the difference between real GDP and nominal GDP. Nominal GDP differs from real GDP as the former doesn’t include inflation, while the latter does.
As a result, nominal GDP will most often be higher than real GDP in an expanding economy.
The formula to find the GDP price deflator:
GDP price deflator = (nominal GDP ÷ real GDP) x 100
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