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GDP deflator

1)Can anyone please tell what -ve value of gdp inflator signifies? as per india's current status.
2)why deflator is showing a different trend with a view to cpi?

answer is highly appreciated !


  • I'll start from the beginning. GDP deflator is the ratio between Real GDP and Nominal GDP. It is important because an economy's nominal GPD differs from its real GDP in that nominal GDP includes inflation, while real GDP does not. Therefore, the GDP price deflator measures the difference between real GDP and nominal GDP, which can also be used as a measure for price inflation.
    A positive deflator actually denotes the level of inflation while a value lower than 1 would show a loss in growth and hence deflation. Negative GDP deflator actually suggests a value lower than 1 and not negative value.

    For the second part, CPI is measured quite differently than GDP deflator. GDP deflator is the sum total of all the services of any economy (hence the term GDP) whereas CPI measures the change in prices of commodities in a specific basket (whose prices may be volatile but are high in demand- like fossil fuels). You can also assume CPI to be a subset of GDP deflator and hence it may or may not exhibit similar properties because GDP deflator measures the macro image of each and every sector in the economy as opposed to CPI. Both are calculated by the Central Statistical Organisation. CPI also has different categories- three broadly: CPI for Industrial Workers, CPI for Agricultural Labourers/Rural Labourers and CPI (Rural/Urban/Combined)
  • Also, GDP inflator would give you a better picture of the economy as a whole, so economists tend to rely on that mostly unless the GNP of a country > its GDP.
  • QUOTE - "nominal GPD differs from its real GDP in that nominal GDP includes inflation, while real GDP does not."

    Searcher + Learner + Singer + Believer
  • Yes because nominal GDP is adjusted for inflation while real GDP is not
  • edited January 5
    Let's take an example, price of 1 egg in 2011-12(base year) is Rs.2, and now in 2018 this price has changed to Rs.5 due to less supply and more demand, less production due to other reasons, general price increase (inflation) and other reasons. So this Rs. 5 is our nominal gdp, Rs2 is real gdp and gdp deflator is (5/2)*100= 250, which shows price increased to 2.5 times than base year price
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