Q2 GDP: Looking at the GDP Deflator

Edward Harrison makes a good point about the unreliability of GDP numbers: the headline GDP number is equal to nominal GDP growth minus the GDP deflator — a measure of broad inflation. When the Q4 2007 GDP growth was revised from +0.6% to -0.2%, half of that was due to the deflator being revised upwards from 2.44% to 2.84%. In Q1 2008, the revised inflation figure was 2.63%. So we’re in a world of inflation somewhere between 2.5% and 3.0%? Not according to the Q2 2008 deflator, which was a very low 1.06%.

Here again I’m with Mike Mandel: when this number is revised, the risks are very much to the downside, if only because the risks to the deflator are to the upside. If inflation was running at a 2.5% pace in Q2, then growth would come down to just 0.5%.

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