How to calculate GDP Deflator

GDP deflator is the ratio of nominal GDP to its base value, which, as a rule, is expressed as percentage. This term was introduced because of necessity of a correct correlation of GDP figures for different periods of year under conditions of sharp change of structure of prices. As a result, GDP can be calculated in current prices, and this value is accepted as nominal. Also GDP can be calculated in prices of a certain year taken as basic, and resulted value is known as basic (or real).

In the USA 1996 year is used as the basic.

Thus, we get formula:

GDP deflator = Nominal GDP/ Real GDP

In the face of necessity to calculate precise dynamic of GDP change for a long period of time it is required to take into account for inflation factor. For that purpose, nominal GDP value of the year next to basic shall be decreased for deflator value, and if the year precedes the basic year, it should be increased respectively. Those operations known as deflating and inflating allow to handle GDP values as if they are not disfigured by price difference for years.

One ought to distinguish GDP deflator accounting for prices for all goods and services of country from the term Consumer Price Index (CPI) accounting for only goods of consumer purpose. Also computation of deflator dies not require prices for imported goods.

Calculation and announcement of GDP deflator are the responsibilities of official statistics entities. In Russia it is Federal State Statistics Service, in the USA – Census Bureau. Deflator publication takes place quarterly and impacts on market significantly. As in the case of GDP, three values of deflator are announced: advance, provisional and final.

For comparison, below we give GDP deflator in various countries of the world for 2006 expressed in percentage against the previous year:

Russia – 115.8;

Belarus - 111;

Ukraine - 115;

Georgia - 108;

Kazakhstan - 122;

Uzbekistan - 127;

Germany - 100.3;

Spain - 103.8;

Italy - 101.8;

United Kingdom - 102.4;

France - 102.3;

Switzerland - 101.4;

Israel - 102.3;

China - 105.5;

South Korea - 99.6;

Japan - 99.1;

USA - 102.9;

South Africa – 106.9;

Argentina - 113.4.