# How to Calculate GDP Inflation

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

## Step 1.

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.

## Step 2.

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

## Step 3.

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

## Step 4.

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

## Step 5.

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

## Step 6.

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

## Tip

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