The GDP deflator summarizes prices of domestically produced final output. It is not the CPI: coverage, weights, imported goods, populations, and methods differ. Neither measure is universally superior; each answers a specified question.
An index level has meaning relative to its reference convention. Inflation is a rate of change between index levels, not the fact that an index exceeds 100. Use nominal and real GDP from the same vintage and period before taking the ratio. A convenient textbook ratio may not reproduce every published chained- dollar table exactly because official chain-type construction is richer.
Recompute a bounded example
If aligned nominal GDP is 1,050 and real GDP is 1,000, the textbook implicit ratio is 1,050 / 1,000 × 100, or 105. A later ratio of 107 does not mean 107% inflation; the rate of change is measured between the two index levels. The BEA GDP guide explains the current-dollar and real series. State the release vintage and units, and do not mix annualized growth rates with GDP levels in the ratio.
Put the concept to work
Apply this concept
- Compute an implicit GDP deflator from aligned nominal and real GDP and contrast its production coverage with a consumer price index.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Build on these ideas
- Nominal GDP — Analyze
To apply this concept: Required. The numerator is current-price GDP.
- Real GDP — Analyze
To apply this concept: Required. The denominator must be the aligned real measure.