GDP Deflator

The GDP deflator, also known as the implicit price deflator, is a gauge of inflation that compares current prices to those in a base year. This comparison reveals whether economic growth is driven by increased production or rising prices.

Example 1: Calculating GDP Deflator

Scenario:

• Nominal GDP in 2025 = ₹12,00,000 crore

• Real GDP in 2025 (base year 2020 prices) = ₹10,00,000 crore

GDP Deflator=12,00,00010,00,000×100=120\text{GDP Deflator} = \frac{12,00,000}{10,00,000} \times 100 = 120GDP Deflator=10,00,00012,00,000​×100=120

Interpretation:

• GDP deflator = 120 → Prices have increased by 20% since the base year.

• Part of nominal GDP growth is due to inflation, while the rest reflects real output increase.