GDP deflator, also known as implicit price deflator, can be defined as an economic concept which measures the change in general price level in an economy for all goods and services over a period of time.
How to measure GDP Deflator
In order to measure GDP deflator, we must know the GDP at current prices and GDP at constant prices.
GDP at the current prices is also called the Nominal GDP. We may calculate Nominal GDP by multiplying the total amount of goods and services produced in a year by their current year prices.
GDP at constant prices is also called the Real GDP. For calculation of the real GDP, we need prices of base year. Base year is a reference year which is normally a year in the past. So, for calculating real GDP, we need to multiply the total amount of goods and services produced in a year with their prices of base year.
Formula for calculating GDP Deflator
Credit : educba.com
Example
Suppose, Nominal GDP of a country in 2021 is Rs 1100 Cr. and the Real GDP is Rs. 1000 Cr. Hence, we can calculate GDP Deflator as below:
GDP Deflator = (1100/1000) x 100
=11 x 10 = 110
An Important Note:
GDP Deflator for base year is taken as 100.
Implication of GDP Deflator
If the value of GDP Deflator is above 100, then it shows an increase in general price level. In the above example, we can see that GDP Deflator has increase from 100 to 110. It means that General Price Level in the economy has increase by 10% relative to base year general price level. Contrary to this, if the value of GDP Deflator is below 100, then it shows a decrease in general price level in an economy.
GDP Deflator and Consumer Price Index
Consumer Price Index (CPI) is a measure of retail inflation in India. It is assessed for change in prices of fixed basket of goods and services. Contrary to this, GDP Deflator is more comprehensive measure of inflation than CPI as it is assessed for all the goods and services in an economy.
Who measures GDP Deflator in India
GDP Deflator is reported by Ministry of Statistics and Programme Implementation (MoSPI).
India’s GDP Deflator in recent years
India’s base year for calculating GDP Deflator is 2011-12. GDP Deflator in India increased to 172.60 points in 2023 from 160.10 points in 2022. GDP Deflator in India averaged 109.51 points from 2005 until 2023, reaching an all-time high of 172.60 points in 2023 and a record low of 58.10 points in 2005.
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