Owith inflation rate rising worldwideknowing how to calculate the rate using the GDP deflator is a useful tool.
Inflation itself is the percentage change in price level from one period to another.
For example, if a good or commodity cost $100 in 2019 and that same good or commodity reached $110 in 2020, the inflation rate for 2020 would be 10%.
How to Calculate Inflation Using the GDP Deflator
GDP deflator is a measure of the price level in an economy and is measured as a ratio of nominal GDP to real GDP.
It means that GDP deflator is calculated as nominal GDP divided by real GDP multiplied by 100.
Since inflation is the percentage change in the overall price of an item in an economy, we can use the GDP deflator to calculate the rate of inflation since it is a measure of price level .
Inflation rate is simply the percentage change in the GDP deflator from period to period.
Mathematically, we can write it as the year 2 GDP deflator subtracted by the year 1 GDP deflator, divided by the year 1 GDP deflator, and then multiplied by 100.