GDP deflator and CPI inflations: A Reason of their differences
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The CPI and GDP deflator are the two most common choices of inflation measure. The different ways of measuring inflation in CPI and GDP deflator could lead to the difference between them. According to the IMF IFS data of 49 countries, the correlations between the GDP deflator and CPI inflation vary by country. The correlation coefficients between CPI and GDP deflator inflation are from -0.058 to 0.982. We also observe at least one period when the GDP deflator and CPI move in opposite directions in every country. The panel regression of 49 countries' CPI on the expenditure parts deflator inflations yields the statistically significant positive estimated coefficients of the private consumption, investments, and import. The panel regression of GDP deflator inflation on the expenditure parts deflator inflations yields the statistically significantly positive estimated coefficients with private consumption, investment, government expenditure, and exports deflator inflations and a negative estimated coefficient with imports deflator inflation. The import deflator inflation was the only cause that statistically significantly increased the difference between CPI and the GDP deflator inflations. Since the GDP deflator and CPI respond differently with each other to import price changes, the import deflator inflation increases the difference between CPI and the GDP deflator inflations.
Abstract
The CPI and GDP deflator are the two most common choices of inflation measure. The different ways of measuring inflation in CPI and GDP deflator could lead to the difference between them. According to the IMF IFS data of 49 countries, the correlations between the GDP deflator and CPI inflation vary by country. The correlation coefficients between CPI and GDP deflator inflation are from -0.058 to 0.982. We also observe at least one period when the GDP deflator and CPI move in opposite directions in every country. The panel regression of 49 countries' CPI on the expenditure parts deflator inflations yields the statistically significant positive estimated coefficients of the private consumption, investments, and import. The panel regression of GDP deflator inflation on the expenditure parts deflator inflations yields the statistically significantly positive estimated coefficients with private consumption, investment, government expenditure, and exports deflator inflations and a negative estimated coefficient with imports deflator inflation. The import deflator inflation was the only cause that statistically significantly increased the difference between CPI and the GDP deflator inflations. Since the GDP deflator and CPI respond differently with each other to import price changes, the import deflator inflation increases the difference between CPI and the GDP deflator inflations.
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