Implicit GDP price deflator
Measures price changes in GDP, used to remove effects of inflation from GDP(Current GDP/implicit price deflator) X 100 = real GDP
The Implicit GDP Price Deflator (IGDP) is a measure of the price level of all the goods and services produced in a country. It is a broad-based price index that reflects the average change in the prices of all the goods and services produced in an economy. This index is used to adjust the Gross Domestic Product (GDP) of a country for price changes as it measures the percentage increase or decrease in the prices of goods and services produced in the economy.
The calculation of IGDP involves comparing the current year’s GDP to the previous year’s GDP in constant dollars. The base year for IGDP is often changed to reflect shifts in the economy’s composition. The implicit price deflator is a more comprehensive measure of inflation compared to the Consumer Price Index (CPI) or Producer Price Index (PPI) as it reflects price changes across all industries, including intermediate goods which are not accounted for in CPI and PPI.
The IGDP provides policymakers with a valuable tool for understanding changes in the price levels of goods and services in the economy. By tracking the IGDP, policymakers can monitor the overall trend in inflation, identify potential risks in the economy, and make informed policy decisions to promote economic growth and stability. The IGDP is also useful for businesses and investors as it helps them understand the impact of inflation on the economy and make informed decisions about investments and pricing strategies. Overall, the IGDP is an essential tool for understanding the health of an economy and making informed policy decisions.
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