GDP Deflator Calculator

The GDP deflator indicates the extent to which growth in a country's gross domestic product is due to an actual increase in production and not to price increases. It is a comprehensive price index that takes into account all goods and services produced within an economy, and it is calculated by multiplying the ratio of nominal to real GDP by 100.

If two out of three values - nominal GDP, real GDP or GDP deflator - are entered, the third value is automatically calculated. The input values can be in thousands, millions or billions units so that original data from national accounts can be directly entered without manual conversion.

What GDP deflators measure:

The deflator is a price index based on the difference when the same volume of production is valued in two different ways.

Nominal GDP measures the current output at current prices while real GDP measures the same output at constant base year prices. If deflator is equal to 100 then current price levels are the same as in the base year. A value above 100 indicates that prices have risen since the base year, while a value below 100 indicates that they have fallen.

Suppose a country's nominal GDP is 2.5 Billion and its real GDP is $2 Billion.

The calculated deflator would be approximately 125, which means that the general price level has risen by about 12.5 percent compared to the base year.

This calculator also uses these two formulas which represent a similar relationship:

The table below shows the individual terms and example values.

How to use this calculator:

1. Enter nominal GDP calculated at current prices and select the appropriate unit (thousands, millions or billions).

2. Enter real GDP at base year prices, in the same currency and units.

3. Check the deflator. To calculate it backwards, either enter the deflator or one of the two GDP values and the missing value will be automatically calculated.

The values of both GDP measures must be expressed in the same currency and referenced to the same base year. Mixing data with different base years produces apparently valid but actually meaningless results. If you select "Compare two periods", then the deflator values for the two periods can be converted into an inflation rate between the periods.

Comparison of GDP deflator and consumer price index.

The deflator and the consumer price index (CPI) are often confused because they both serve to measure inflation. However, there are two important differences between them.

• The scope of goods: The CPI tracks a fixed basket of goods that mainly includes the items households typically buy monthly. The deflator, on the other hand, considers all domestic products including investment goods, exports and government spending.

• Basket changes: The basket of goods in the deflator is updated regularly to reflect actual production patterns, while the basket for the CPI remains fixed for a period and is only revised occasionally.

• For imported goods, the CPI takes into account consumer purchases of imported goods while the deflator excludes imports completely and measures only domestic production.

Although both indicators usually show similar trends, the deflator tends to have lower values due to its broader scope and more conservative measurement. The CPI is a good measure of cost-of-living, while the deflator is better suited as an overall inflation indicator for the entire economy.

Use of deflator:

• Central banks and finance ministries track the deflator along with the CPI, where the difference between both values has informative aspects.

• Researchers use the deflator to convert nominal GDP series into real GDP, allowing them to compare output volumes across years without having to account for the effects of price increases.

• When comparing economic growth between different countries, such an index provides a more consistent basis than indices that focus only on consumers.

• Macroeconomic analysts use deflators to assess the inflationary environment in which firms operate. This is particularly important for firms whose earnings are more closely tied to GDP than consumer spending.

Hints for correct calculation.

• We take two different GDP data sets from the same source. The Bureau of Economic Analysis publishes U.S. GDP with a clearly defined base year, and the World Bank provides similar data for various countries.

• The reference years must be the same. A nominal series in USD for 2017 cannot be directly compared to a real series in USD for 2012.

• The time periods must match. Mixing quarterly nominal data with annual real data leads to meaningless ratios.