How to Calculate GDP Inflation

Using GDP to determine inflation can lead to a confusing analysis. Most who are not familiar with the calculation do not realize that the GDP, or gross domestic product, only considers products sold from a country and not the value of imports. Calculating GDP involves finding both the real GDP and the nominal GDP.

Things You'll Need

• Calculator

Instructions

How to Calculate GDP Inflation

1. Make the following assumptions for the calculations: a hypothetical country named Floral makes flowers. Production in year one: 2000 flowers sold for $2 each. Production in year two: 2300 flowers sold for $2.10 each.

2. Calculate the nominal GDP for each year. Year 1 = 2000 * $2 = $4000. Year 2 = 2300 * $2.10 = $4830.

3. Calculate the real GDP for each year. This is simply the total number of goods sold. Year 1 = 2000. Year 2 = 2300.

4. Calculate the nominal GDP growth from year 1 to year 2. In the example: ($4830/$4000 -1)100= 20.75%.

5. Calculate the real GDP growth from year 1 to year 2. In the example: (2300/2000 - 1)100 = 15%.

6. Find the change between nominal and real GDP to get the GDP deflator. In the example: 20.75% - 15% = 5.75%. This is the GDP inflation.

Tips & Warnings

• Use actual national data as found at the Bureau of Economic Analysis to calculate actual GDP inflation for any specified time period.