GDP Deflator
The GDP deflator measures the change in prices of all domestically produced goods and services within an economy.
Meaning in Practice
Unlike the CPI, the GDP deflator covers all components of GDP, including investment and government spending. It reflects price changes across the entire economy. The indicator is typically reported quarterly.
Why It Matters
The GDP deflator provides a broad measure of inflation and helps convert nominal GDP into real GDP. Policymakers use it to assess overall price stability. It complements consumer-based inflation measures.
Market Impact
A rising GDP deflator may increase expectations of monetary tightening. Bond yields and currency markets react to changes in inflation outlook. Equity responses depend on growth and margin implications.
Example
If nominal GDP rises by 5 percent but the GDP deflator increases by 2 percent, real GDP growth is approximately 3 percent.