Gross domestic product is probably the most important of all macroeconomic indicators, which makes it possible to judge the results of economic activity in a country for a specified period of time. It represents the total volume of products and services provided received by residents of a particular state. In order to bring this indicator into a comparable form, economists calculate the GDP deflator, which makes it possible to trace the dynamics for several reporting periods in the context of a constantly changing level and price structure. This indicator is a generalized measure of current inflation, therefore, it always attracts the attention of many experts.
Definition
The GDP deflator is a special price index created to determine the aggregate level of prices for services and goods (consumer basket) for a specific, separate period. It allows you to calculate changes in real volumes of production in the country. Usually it is calculated in the departments of official statistics, in Russia the Federal State Statistics Service is in charge of this issue.
Basic properties
When calculating the GDP deflator, absolutely all goods and services that are included in the GDP of a given country are taken into account. Imported goods are excluded when determining this indicator. Unlike the consumer price index, this index ( GDP deflator ) is based on the size of the current year’s consumer basket , while the CPI uses the base period. If during the calculation period any new products were produced, then they also fall into this indicator.
Calculation and correlation of formulas
A GDP deflator is the ratio of the nominal value of GDP (Nominal GDP), expressed in market prices of the current period (usually one year), to real GDP (Real GDP), which is determined in the prices of the base year. As a rule, the result obtained is multiplied by 100, i.e., converted to percent. Thus, its formula can be represented as follows:
GDP deflator = (Nominal GDP value / Real GDP value) x 100%.
Nominal GDP is calculated using several methods: by expenditure (production method), by income (distribution method) and by value added. Most often, the first option is used, which involves the use of such a formula:
GDP = pH + RFI + G + CE, where
PH - population expenses;
VCHI - gross private investment;
G - public procurement;
SE - net export of the country (the difference between indicators of export and import).
In addition, they calculate the price index of the reporting year (period), which is needed in order to calculate real GDP:
Current Period Price Index = Current Period Prices / Base Period Prices.
Dividing the value of the nominal domestic product into it, we obtain the value expression of the volume of national production in comparable prices. As you can see, this price index, in fact, is the deflator of GDP. Therefore, it is very often used to find this formula:
GDP deflator = ∑ (Q t x P t ) / ∑ (Q t x P 0 ), where
Q t - the volume of production of the reporting period in physical terms;
P t - price of the goods (service) in the reporting year;
P 0 - price of the goods (service) in the base year.
The resulting index has another name - the Paasche price index. If the obtained value is more than unity, this means that inflation in the economy is growing, and if less, it is falling.