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Cumulative inflation with GDP Deflator

When working with GDP Deflator, we can calculate the cumulative inflation on consumed and produced goods in a market with the following equation:

Cumulative inflation % = GDP Deflator - 100

Cumulative inflation with GDP Deflator represents the total increase in price of consumer and producer goods due to inflation!

Given the following scenario...

Scenario: A country produces only X and Y; their outputs last year and this year are given in the table below. Calculate the GDP deflator.

Base YearThis Year
Output of X100120
Output of Y4080
Px$20$30
Py$15$20

...we could calculate a GDP Deflator of 144.4.

GDP Deflator = (Nominal GDP / Real GDP) * 100
GDP Deflator = ($5200 / $3600) * 100
GDP Deflator = ($5200 / $3600) * 100
GDP Deflator = (1.444) * 100
GDP Deflator = 144.4

From here, we can plug this into our cumulative inflation % formula...

Cumulative inflation % = GDP Deflator - 100
Cumulative inflation % = 144.4 - 100

...resulting in a cumulative inflation % of 44.4%!

Cumulative inflation % = GDP Deflator - 100
Cumulative inflation % = 144.4 - 100
Cumulative inflation % = 44.4

This shows us that since the base year, the prices of Px and Py have increased by 44.4% due to inflation!

We're subtracting our GDP Deflator by 100...

Cumulative inflation % = GDP Deflator - 100

...because GDP Deflator is based on an index of 100. Remember what we said before:

The base / starting point / index for GDP Deflator is 100.

In other words, the index for a GDP Deflator is at 100, so subtracting 100 from the GDP Deflator shows us how much our GDP Deflator differs from the base value!