GDP Implicit Price Deflator

The GDP implicit price deflator measures the level of price change in the U.S. economy. The GDP implicit price deflator is computed by dividing current dollar GDP by constant dollar GDP. The numerator of the GDP implicit price deflator is thus nominal GDP in a given year, unadjusted for price changes. The denominator of the GDP implicit price deflator is what nominal GDP would have been in a predetermined base year. By comparing current dollar GDP to constant dollar GDP, the GDP implicit price deflator accounts for the level of price change. The advantage of using the GDP implicit price deflator to the Consumer Price Index is that the CPI is based on a fixed basket of goods and services, while the GDP implicit price deflator is based on the entire economy. Thus the GDP implicit price deflator, unlike the CPI, reflects changes in consumption and investment trends.