What do implicit price deflators mean

The definition of "inflation" for setting a property tax levy RCW Near the end of every month, BEA publishes an estimate of the gross domestic product and IPD numbers from the previous calendar year quarter. For instance, every January BEA releases the first estimate, or "advance estimate," of the numbers for the preceding fourth quarter October-December.

These quarterly numbers are seasonally adjusted each year in July, and these seasonal numbers form the basis for the prior year IPD personal consumption expenditure number that is used by DOR to calculate inflation. The most recent publication available on September 25 is typically the August publication, or the "second estimate" for Q2.

This means that, for property tax purposes, the rate of change in the IPD is typically calculated by comparing the "second estimate" for Q2 to the revised Q2 data from the previous year. See Line 2, Personal Consumption Expenditures. Every September, we will publish the new IPD rate for property tax purposes at the top of this page. For historical IPD increases for property tax purposes, see the section at the bottom of this page.

Before we explore the GDP price deflator, we must first review how prices can impact the GDP figures from one year to another. For instance, let's say the U. The GDP price deflator helps to measure the changes in prices when comparing nominal to real GDP over several periods. We use the following formula to calculate the GDP price deflator:. The result means that the aggregate level of prices increased by 25 percent from the base year to the current year.

This is because an economy's real GDP is calculated by multiplying its current output by its prices from a base year. The GDP price deflator helps identify how much prices have inflated over a specific time period. This is important because, as we saw in our previous example, comparing GDP from two different years can give a deceptive result if there's a change in the price level between the two years.

Without some way to account for the change in prices, an economy that's experiencing price inflation would appear to be growing in dollar terms. However, that same economy might be exhibiting little-to-no growth, but with prices rising, the total output figures would appear higher than what was really being produced.

There are other indexes out there that also measure inflation. Many of these alternatives, such as the popular consumer price index CPI , are based on a fixed basket of goods. The CPI, which measures the level of retail prices of goods and services at a specific point in time, is one of the most commonly used inflation measures because it reflects changes to a consumer's cost of living. However, all calculations based on the CPI are direct, meaning the index is computed using prices of goods and services already included in the index.

The fixed basket used in CPI calculations is static and sometimes misses changes in prices of goods outside of the basket of goods. For instance, changes in consumption patterns or the introduction of new goods and services are automatically reflected in the deflator but not in the CPI.

What this means is that the GDP price deflator captures any changes in an economy's consumption or investment patterns. Obtained by dividing the GDE at current prices by GDE at constant prices and can be used to calculate an inflation rate for the country as whole. Obtained by dividing a current-price value by the corresponding constant-price value and multiplying the result by A deflator can be calculated for any magnitude or variable for which data is available at both current prices and constant prices.

For instance, it is possible to calculate a deflator for private consumption spending by households since data for both current and constant values is available. GDE at constant prices is a function of a process to convert, using a wide variety of methods and indices, GDE at current prices to GDE at constant prices. The percentage change between successive annual values of the GDE deflator indices gives an indication of the inflation rate for the country as a whole.

Questions 7 to 11 are based on the following table. Assume the base year is The GDE deflator index is therefore. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times. Use this quiz to check your understanding and decide whether to 1 study the previous section further or 2 move on to the next section. Skip to main content.