# How to Calculate GDP Inflation

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Using GDP to determine inflation can lead to a confusing analysis. Most who are not familiar with the calculation do not realize that the GDP, or gross domestic product, only considers products sold from a country and not the value of imports. Calculating GDP involves finding both the real GDP and the nominal GDP.

## How to Calculate GDP Inflation

Make the following assumptions for the calculations: a hypothetical country named Floral makes flowers. Production in year one: 2000 flowers sold for \$2 each. Production in year two: 2300 flowers sold for \$2.10 each.

Calculate the nominal GDP for each year. Year 1 = 2000 * \$2 = \$4000. Year 2 = 2300 * \$2.10 = \$4830.

Calculate the real GDP for each year. This is simply the total number of goods sold. Year 1 = 2000. Year 2 = 2300.

Calculate the nominal GDP growth from year 1 to year 2. In the example: (\$4830/\$4000 -1)100= 20.75%.

Calculate the real GDP growth from year 1 to year 2. In the example: (2300/2000 - 1)100 = 15%.

Find the change between nominal and real GDP to get the GDP deflator. In the example: 20.75% - 15% = 5.75%. This is the GDP inflation.

Read More: How to Calculate the Annual Growth Rate for Real GDP

#### Tips

• Use actual national data as found at the Bureau of Economic Analysis to calculate actual GDP inflation for any specified time period.