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The GDP Deflator and the Inflation Rate

Posted on September 03, 2008

There is confusion between the GDP deflator and other measures of prices such as the CPI and the PCE deflator. Here's one way to think about it that might help to clear things up. The CPI (or the PCE) attempts to measure how the prices of a typical market basket of goods changes over time. The idea is to measure the impact of price changes on the consumption bundle of the average household.However, that's not what the GDP deflator measures. Just as we can think of a typical bundle of goods that a household consumes, we can also think about the price of a unit of GDP. GDP is composed of four el...

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demand , economic , oil prices