What is GDP Price Deflator and Core Inflation? | UPSC Economics

GDP Price Deflator and Core Inflation are some of the interesting and important topics in the UPSC Economy subject. 

GDP Price Deflator

GDP Price Deflator is also known as GDP deflator and implicit price deflator. GDP Price measures the changes in price for all the goods and services produced in an economy. Using the GDP Price deflator, economists compare the levels of real economic activity from one year to another. 

GDP Price deflator is a comprehensive inflation measure compared to the Consumer Price index. Because the GDP Price deflator isn’t based on fixed goods. The GDP Price deflator shows the effect of price changes on GDP first by establishing a point with the base year and then comparing the current prices to prices in the base year. 

The formula used for the GDP Price deflator is GDP Price Deflator = (Nominal GDP/ Real GDP) X 100 

 With the help of the GDP Price deflator, we can identify how much prices have inflated over the years. 

Core Inflation 

Core Inflation simply means the change in the costs of goods and services. It doesn’t include the food and other energy sectors. The Core inflation is calculated using the consumer price index which is used as a measure of prices for goods and services. Core Inflation is very important because it is used to determine the impact of rising prices on consumer income. 

It is important to measure core inflation because it helps to reflect the relationship between the prices of goods and services. Core Inflation guides governments in understanding the long-term inflation trends of a country. 

 Apart from food, and other energy sectors. Core Inflation goods and services include electronics, real estate, transport, retail, pharmacy, IT(Information technology), Telecom, Garments industry, Water services, Medical Care, Education sector, and the Automobile industry. The formula used for Core Inflation is 

Core Inflation= Change in the price of all goods and services – Change in the price of energy and food. 

Core Inflation and GDP Deflator are important aspects of the economy. Both of them are used to understand the prices of goods and services, and they are very important in the economy.

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