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 Year | This Year | |
---|---|---|

Output of X | 100 | 120 |

Output of Y | 40 | 80 |

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!

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