GDP Deflator
A price index that measures economy-wide inflation by comparing nominal GDP to real GDP across all goods and services.
What is GDP Deflator?
The GDP deflator is a comprehensive price index that measures the average change in prices across the entire economy by comparing nominal GDP (output valued at current prices) to real GDP (output valued at base-year prices). Unlike the Consumer Price Index (CPI), which tracks a fixed basket of consumer goods, the GDP deflator covers all goods and services produced domestically — including business investment, government spending, and exports — and automatically updates its basket as the composition of output changes. The GDP deflator is calculated as (Nominal GDP / Real GDP) × 100. It is published quarterly by the Bureau of Economic Analysis and used by economists to convert nominal figures to real (inflation-adjusted) values. The GDP deflator tends to be lower than the CPI during periods when import prices are rising, since imports are excluded from domestic GDP.
Example
In Q2 2022, US nominal GDP grew 7.8% year-over-year. But the GDP deflator showed 8.5% price inflation over the same period, meaning real GDP actually contracted by approximately 0.7% — indicating that the dollar increase in output was entirely driven by inflation, with no actual increase in the physical volume of goods and services produced. This distinction between nominal and real growth is central to understanding whether an economy is genuinely expanding.
Source: Bureau of Economic Analysis — National Income and Product Accounts