# What Is the GDP Price Deflator?

> **Definition**
>
> The GDP price deflator is a gauge of inflation that computes changes in the prices of goods and services that are made in the U.S., including exports.

## What Is the GDP Price Deflator?

The gross domestic product (GDP) price deflator measures the amount by which total output is reduced by inflation.

The GDP deflator formula includes the value of all final goods, including exports. It does not factor in the prices of imports. The [Bureau of Economic Analysis (BEA)](https://www.investopedia.com/terms/b/bea.asp) uses the formula to track economic trends while accounting for inflation in the prices of goods and services produced in the United States.

The GDP deflator is very similar to the GDP price index except in its calculation.  

### Key Takeaways

*   GDP measures the market value of all goods and services produced in an economy.
*   The GDP price deflator measures inflation in the prices of goods and services produced in the U.S., including exports.
*   The GDP price deflator is a more comprehensive inflation measure than the CPI, which measures the price changes in a fixed basket of goods.  
    

![GDP Price Deflator](https://www.investopedia.com/thmb/gu7dFI8ueWy-89jKWqdSdDgSFvo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/gdppricedeflator-Final-a1586ddddb22450a8b9d4777373ce82c.jpg)

*The GDP deflator is calculated by dividing nominal GDP by real GDP and multiplying by 100. — Investopedia / Laura Porter*

## Formula

To calculate the GDP price deflator, divide the nominal GDP by the real GDP and multiply the result by 100.

[Nominal GDP](https://www.investopedia.com/terms/n/nominalgdp.asp) is the total value of goods and services produced during a specific period less the value of products made during production. [Real GDP](https://www.investopedia.com/terms/r/realgdp.asp) refers to the value of goods and services produced in a year and adjusted for inflation.

**GDP Price Deflator = (Nominal GDP ÷ Real GDP) × 100**

## GDP vs. GDP Price Deflator

GDP represents the total output of goods and services. It doesn't factor in the impact of inflation or rising prices. The GDP price deflator addresses this by showing the effect of price changes on [gross domestic product](https://www.investopedia.com/terms/g/gdp.asp).

The price deflator formula establishes a [base year](https://www.investopedia.com/terms/b/base-year.asp) and compares current prices to the base year prices. It estimates the extent of price level changes, or [inflation](https://www.investopedia.com/terms/i/inflation.asp), within the economy by tracking the prices paid by businesses, the government, and consumers.

The BEA uses the GDP price deflator to report quarterly price changes from the preceding quarter. The real gross domestic product increased at an annual rate of 2.4% in the fourth quarter of 2024. In the third quarter, it increased by 3.1 %.

> **Important**
>
> Economic indicators are key statistics and data sets that show the health of a nation's economy. GDP is a leading indicator in the U.S.

## Example

Some companies may use the GDP price deflator to adjust their contract payments. It helps identify how much prices have inflated over time. The GDP price deflator measures price changes when comparing nominal to real GDP over several periods. 

Comparing GDP to a previous year can be deceptive if prices change between periods. Without some way to account for price changes, an economy that experiences price inflation would appear to be growing in productivity when it is growing only in dollar terms.

For example, suppose the U.S. produced $10 million worth of goods and services in year one. In year two, the output or GDP increased to $12 million. It would appear that total output grew by 20% year-on-year.

However, if prices rose by 10% from year one to year two, the $12 million GDP figure is inflated compared to year one. The economy only grew by 10% from year one to year two, accounting for inflation. The nominal GDP for year two is $12 million, while the country's real GDP is $11 million.

## GDP Price Deflator vs. the Consumer Price Index (CPI)

The [consumer price index (CPI)](https://www.investopedia.com/terms/c/consumerpriceindex.asp) is another inflation gauge. It measures the level of retail prices of goods and services over time and reflects changes to a consumer's [cost of living](https://www.investopedia.com/terms/c/cost-of-living.asp).

However, all CPI calculations are direct, which means the index is computed using prices of a fixed basket of goods and services. So the CPI misses changes in prices of goods outside of the [basket](https://www.investopedia.com/terms/b/basket_of_goods.asp). The GDP price deflator doesn't miss these because it measures the price changes for all goods and services.

For instance, changes in consumption patterns or the introduction of new goods and services are automatically reflected in the deflator but not in the CPI. The GDP price deflator captures changes in an economy's consumption or investment patterns.  

## What Is Gross Domestic Product (GDP)?

Gross domestic product is the total value of all the finished goods and services produced within a country’s borders within a specific time. The U.S. government releases an [annualized](https://www.investopedia.com/terms/a/annualize.asp) GDP estimate for each fiscal quarter and the calendar year.

## What Is Deflation?

Deflation is a general decline in prices for goods and services, typically associated with a contraction in the supply of money and credit in the economy. During [deflation](https://www.investopedia.com/terms/d/deflation.asp), purchasing power increases.

## What Is the Consumer Price Index?

The CPI is a [weighted average](https://www.investopedia.com/terms/w/weightedaverage.asp) of the prices of a predetermined basket of consumer goods and services, such as transportation, food, and medical care. Changes in the CPI are used to assess price changes associated with the cost of living. The CPI is compared with the [Producer Price Index (PPI)](https://www.investopedia.com/terms/p/ppi.asp), which looks at what businesses pay for input goods.

## The Bottom Line

The gross domestic product is the total of all goods and services produced, and the number is tracked consistently to determine the health of the U.S. economy. The GDP price deflator measures how total output is reduced due to inflation.

> **Article Sources**
>
> 1.  Bureau of Economic Analysis. "[GDP Price Deflator](https://www.bea.gov/data/prices-inflation/gdp-price-deflator)."
>     
> 2.  Bureau of Economic Analysis. "[Gross Domestic Product, 4th Quarter and Year 2024 (Third Estimate), GDP by Industry, and Corporate Profits](https://www.bea.gov/news/2025/gross-domestic-product-4th-quarter-and-year-2024-third-estimate-gdp-industry-and)."
>     
> 3.  U.S. Bureau of Labor Statistics. "[Consumer Price Index](https://www.bls.gov/cpi/)."