# GDP Deflator

 Released: On quarterly basis Released By: The Bureau of Economic Analysis (BEA)

This is a non-traded economic indicator that reflects the prices of all new, domestically produced goods and services in a country. It measures inflation/deflation over time, using 2005 as the base year with the deflator set to 100. The GDP Deflator values are then reported with reference to the 2005 benchmark of 100. The GDP deflator compares the prices of currently produced goods and services, to the prices of these same goods in the base year (which is 2005).

The GDP Deflator is not based on a fixed basket of goods and services, thus changes in the consumption patterns of the consumers and the introduction of new goods and services can be automatically captured in the GDP Deflator.

Formula for calculating GDP Deflator = (Nominal GDP/Real GDP) X 100

## Time of Release

The GDP Deflator report is released by the Bureau of Economic Analysis (BEA). The GDP Deflator is part of a series of price indexes reported by the BEA every quarter.

## Interpreting the Data

How is the GDP Deflator used? The deflator value for a particular year is obtained from the BEA’s report, and then compared with the 2005 value (i.e. 100). The difference between the current value and the 2005 value is taken, and expressed as a percentage which the 2005 USD value can purchase in excess of the current value. For instance, if in 2010, the GDP Deflator for was 110.99, it means that the USD value in 2005 dollar could buy ({110.99- 100}/100)% more than the value of the USD the previous year (i.e. the 2009 US Dollar value).

The GDP Deflator for 1950 was 14.65. On average the 1950 dollar could buy (100/14.65) 6.82 times as many goods as the 2005 dollar. Usually, the value of the USD is eroded by inflation as the years go by so pre-2005 US Dollars can buy more than the 2005 US Dollars, expressed by the GDP Deflator value. Also, the 2005 US Dollar can buy more than the USD can in years following 2005, also expressed by the GDP Deflator value.

## Conclusion

Even though the GDP Deflator is not a tradable indicator, it can be used in a variety of ways by investors. It can be used to calculate inflation rate, since inflation is a measure of the percentage increase in the value of the GDP deflator from the start to end of the period in view.