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Understanding The GDP Deflator

ByDoug Short
Published 07/31/2013, 03:17 PM
Updated 07/09/2023, 06:31 AM
ICON
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How do you get from Nominal GDP to Real GDP? You extract inflation from the numbers. The Bureau of Economic Analysis (BEA) uses its own GDP deflator for this purpose, one that is somewhat different from the BEA's deflator for Personal Consumption Expenditures and quite a bit different from the better-known Bureau of Labor Statistics' inflation gauge, the Consumer Price Index.

Wednesdays Advance Estimate of Real GDP surprised to the upside at 1.67%, which gets rounded up to 1.7% in the popular press. Investing.com had forecast 1.0% and Briefing.com's GDP consensus was for 1.1%.

But equally surprising was the disinflationary trend in the BEA's deflator for Wednesday's calculation. Remember: The lower the defator, the higher the GDP. Also I should point out that the deflator is the compounded annual rate of change. The GDP deflator for Q1 of this year was 1.7%, which is right at the 1.75% deflator average for the past 14 quarters (since Q4 of 2009). Briefing.com's deflator forecast was for 1.6%, just a tad below the recent average.

What If?
What would GDP have been if the deflator had been at these levels?
GDP And The Deflator
I'll investigate the topic of alternate deflators more closely after we get the BEA's June PCE deflator on Friday.

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