How to Calculate Inflation From the GDP Deflator
Inflation refers to an increase in the overall level of prices in an economy, typically represented as an annual percentage change. In popular usage, inflation is calculated to reflect only the prices of goods and services regularly consumed by households. This is accomplished by using the consumer price index in the calculation. However, this measure of inflation omits goods and services not consumed by households. To measure the prices of all goods and services that an economy produces, you must calculate inflation using the economy's gross domestic product, or GDP, deflator.
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Instructions
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1
Write down the formula for calculating an annual percentage change: ((T1 - T0) / T0) * 100. This formula requires a number corresponding to the base time (T0) and a number corresponding to one year after the base time (T1).
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2
Collect GDP deflator figures from the Federal Reserve Bank of St. Louis website (see Resource section). You will find quarterly data for every year since 1947. Because each year has four data points, make note of figures for the same month in both of your chosen years. For international GDP deflator data, visit the World Bank's website.
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3
Insert the GDP deflator figures into the formula. For example, in January 2009 the GDP deflator was 109.484, while in January 2010 it was 109.952. In this case, the calculation becomes ((109.952 - 109.484) / 109.484) * 100.
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Calculate the inflation rate. The example produces the number 0.43, as rounded to two decimal places. Thus, the 2009 inflation rate was 0.43 percent.
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Tips & Warnings
The GDP deflator and the consumer price index measure different baskets of goods and thus will produce slightly different rates of inflation.
The Federal Reserve Bank of St. Louis refers to the GDP deflator as the gross domestic product implicit price deflator (GDPDEF). Both phrases refer to the same data.
References
Resources
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