Finocturne
Macroeconomics

GDP Deflator

Derive the price index from nominal and real GDP and optionally compare it with the previous index.

Question, try, then observe

Does a deflator of 120 mean 120% inflation?

Adjust prices and output separately to see which changes real growth and which changes the deflator.

Hypothetical teaching scenario; results update immediately.

One-good teaching model: previous GDP = 1,000
Previous GDP1,000 bn TWD
Current real GDP1,050 bn TWD
Current nominal GDP1,081.5 bn TWD
GDP deflator index
103.00 index points
Change from previous index 100
3.00%

Nominal divided by real GDP, base 100

1,081.501,050.00×100≈103.00

Output changes 5.00% and prices change 3.00%. Real GDP is 1,050.00, nominal GDP is 1,081.50 and the deflator is 103.00. This simplified model starts with a price index of 100.

One-good model with a consistent reference price; two-period changes are not annualized.

What did you just see?

Holding quantity fixed while raising prices increases nominal GDP and the deflator, with real GDP unchanged. Quantity growth alone does not change the index in this teaching model.

Before comparing two periods

Use the same period, unit and coverage for nominal and real GDP, and consistent index definitions and reference year across periods. Follow the statistical publisher’s methodology for real data. The interaction is a one-good price/quantity decomposition.

Another example

  1. Enter same-period nominal GDP 1,200 and real GDP 1,000.
  2. Use billion USD for both and a consistent reference-year price basis.
  3. The index is 120; compare with previous 110 rather than labeling 120 as an inflation percentage.
Show formal definition and formula

The implicit GDP deflator is same-period nominal GDP divided by real GDP, times 100. Its inflation rate is the percentage change between two index levels.

Current GDP deflator

Two-period implied price change

The implicit GDP deflator is same-period nominal GDP divided by real GDP, times 100. Its inflation rate is the percentage change between two index levels.

GDPnom
Current nominal GDP (billion TWD, at current prices)
GDPreal
Current real GDP (billion TWD, with a consistent reference basis)
D0
Previous GDP deflator (optional, index points)
D1
Current GDP deflator (index points)
πGDP
Price change calculated from the two deflator indices
Units
GDP uses billion TWD. D is in index points, with a reference price level of 100; π GDP is a decimal change, so 0.05 displays as 5%. Index points are not inflation percentages.

Common mistakes

An index is not an inflation rate. The GDP deflator covers domestic production, including exports and excluding imports; CPI covers a consumer basket with different scope and weights. Chain-linked real GDP has a reference year and is not a simple sum at fixed base-year prices in every period.

Frequently asked questions

Can I find inflation without a previous index?

You can calculate the current index only. The rate of change requires a previous index; a blank field never silently assumes 100.

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You can now explore…

  • Derive the deflator from nominal and real GDP
  • Separate an index level from its rate of change
Term reference1 terms

Open a term when you need a reminder. Underlined words in the article work too.