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Give some points AGAINST GDP Deflator?

Give some points AGAINST GDP Deflator?


  • It comes quarterly while other data like CPI, WPI come monthly.
  • 1.) GDP deflator is an implicit price index i.e. first a quantity measure (here real GDP) is constructed and then we compare movement in GDP in current and constant rupees to guage changes in prices. We do not explicitly measure changes in prices. CPI WPI are explicit in that prices movements are directly measured.

    2.) GDP deflator does not includes prices of imports (CPI on other hand directly includes it) because it includes only prices of goods produced in the country.

    3.) GDP deflator is not the one in which policymakers are interested because they are more interested in measuring ongoing inflationary trends ie on core inflation (which CPI and WPI includes). There are at least two reasons for this
    i) because the prices of some goods in economy are volatile hence their price changes are often temporary.
    ii) because in reality there is no such thing as pure inflation which is defined as proportional increase in all prices and wages. During periods of inflation, not all prices rise proportionally.Hence the govt would be more concerened about prices of goods consumed by people not prices of bombs, military tanks,machine tools etc (unless it involves corruption in rafale deal).

    4.) CPI WPI matter more to consumers as well. Consumers care more about the average price of consumption - prices of goods they consume rather than average prices of goods produced in the economy.

    5.) As mentioned above in a comment, GDP deflator available quarterly CPI WPI monthly.

  • Thanks @cedricrahul
    Thanks @Boxofparadox for such valuable inputs.
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