GDP deflator is an indicator that shows the ratio of prices for products of the current year to prices of the previous or base year with which they are compared. This indicator is used to calculate the value of real GDP, which is defined as the ratio of nominal GDP, expressed in current market prices, to the deflator index.
GDP deflator is usually calculated by the national statistical offices or central banks of different countries. For example, in Russia, this index is calculated by the Federal State Statistics Service (GKS), in China - by the National Bureau of Statistics, in the Eurozone - by the statistical service Eurostat, in Ireland - by the Central Bank of Ireland, in Brazil - by the Central Bank of Brazil.
The deflator can be calculated monthly (for example, in Kyrgyzstan and Azerbaijan), quarterly (in the USA, Russia, the Netherlands, and the United Kingdom), or on an annual basis (for example, in Greece, Iceland, Saudi Arabia, and India).
Most often, the GDP deflator is measured in points (for example, in Slovakia, Hong Kong, and Lithuania), but it can also be calculated as a percentage (for example, in Latvia, Portugal, and North Macedonia).
The graph below shows the dynamics of the GDP deflator values in countries from different regions of the world for the period from 2016 to early 2021.
The GDP deflator should not be confused with an indicator such as the consumer price index (CPI). The differences between these indicators are as follows:
1) The deflator takes into account the dynamics of prices for all types of goods and services, while, when calculating the CPI, only price changes for consumer goods are taken into account.
2) The deflator index, in contrast to the CPI, takes into account changes in the structure of goods produced.
3) The GDP deflator also does not take into account changes in the prices of imported goods.