The Lemon Fool

I recall being told many times before now that growth is the increase of GDP after inflation has been removed.

Never understood that one

If growth is 2% and inflation is 5% then we are 3% in the red. In other words if inflation exceeds growth we are seeing the equivalent of negative growth. If the cost of living has gone up, and it has, what difference does growth make if, at the very least, it doesn't exceed inflation?

AiY(D)

I recall being told any times before now that growth is the increase of GDP after inflation has been removed.

I dare say GDP can be measured and by comparing it to a previous period, the growth in GDP as well. If the growth in GDP is partly attribited to rising prices, you have to subtract that effect to get the "real" frowth.

I think this should be moved to the economy board. You need to distinguish nominal GDP and real GDP. Here is the OBR view on real GDP growth:

https://obr.uk/forecasts-in-depth/the-e ... th/#medium

AsleepInYorkshire wrote:I recall being told many times before now that growth is the increase of GDP after inflation has been removed.

Never understood that one

If growth is 2% and inflation is 5% then we are 3% in the red. In other words if inflation exceeds growth we are seeing the equivalent of negative growth. If the cost of living has gone up, and it has, what difference does growth make if, at the very least, it doesn't exceed inflation?

AiY(D)

If growth is "after inflation" as you say, then in your example it is 2% in the black.

Growth after inflation is 2%. Inflation is 5%. So growth before inflation is 7%.

(Agreed if this discussion is to be about matters such as GDP and Inflation it should be on the Economy Board)

You could equally well say it is only real growth if measured on a per capita basis (i.e. adjusted for population growth).

Sorry I didn't remember we had an economy board - thank you

AiY(D)

AsleepInYorkshire wrote:I recall being told many times before now that growth is the increase of GDP after inflation has been removed.

Never understood that one

If growth is 2% and inflation is 5% then we are 3% in the red. In other words if inflation exceeds growth we are seeing the equivalent of negative growth. If the cost of living has gone up, and it has, what difference does growth make if, at the very least, it doesn't exceed inflation?

AiY(D)

Try being more specific in your use of terminology:
"Real GDP growth" = "Nominal GDP Growth" - "Inflation"

TUK020 wrote:

AsleepInYorkshire wrote:I recall being told many times before now that growth is the increase of GDP after inflation has been removed.

Never understood that one

If growth is 2% and inflation is 5% then we are 3% in the red. In other words if inflation exceeds growth we are seeing the equivalent of negative growth. If the cost of living has gone up, and it has, what difference does growth make if, at the very least, it doesn't exceed inflation?

AiY(D)

Try being more specific in your use of terminology:
"Real GDP growth" = "Nominal GDP Growth" - "Inflation"

I believe that the exact formula is:

(1 + nominal_growth / 100) / (1 + inflation / 100)

GeoffF100 wrote:You need to distinguish nominal GDP and real GDP.

Also, between CPI, RPI and no doubt many other measures of inflation.

GDP is calculated with a deflator built in to account for the nominal change in prices, but rather confusingly I believe that it is not the same CPIH figure that is used for the cost of goods and services

vand wrote:GDP is calculated with a deflator built in to account for the nominal change in prices, but rather confusingly I believe that it is not the same CPIH figure that is used for the cost of goods and services

The GDP deflater is discussed here:

https://en.wikipedia.org/wiki/GDP_deflator

scrumpyjack wrote:You could equally well say it is only real growth if measured on a per capita basis (i.e. adjusted for population growth).

This chart shows only up until 2020. Population has continued to rise by ~0.3 million per year, GDP for year beginning 2022 still below Q4 2019

From: https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?end=2020&locations=GB&start=1960&view=chart

anon155742 wrote:This chart shows only up until 2020. Population has continued to rise by ~0.3 million per year, GDP for year beginning 2022 still below Q4 2019

But a graph of actual GDP (even PC) doesn't really help. As that isn't inflation adjusted and could ALL be down to inflation.

Gryff

gryffron wrote:

anon155742 wrote:This chart shows only up until 2020. Population has continued to rise by ~0.3 million per year, GDP for year beginning 2022 still below Q4 2019

But a graph of actual GDP (even PC) doesn't really help. As that isn't inflation adjusted and could ALL be down to inflation.

Gryff

Plot GDP actual and Inflation (RPI) on the same basis, starting with them equal.

TJH

tjh290633 wrote:Plot GDP actual and Inflation (RPI) on the same basis, starting with them equal.

RPI inflation is not what we want from a macro-economic standpoint. The Wikipedia link above states:

Unlike some price indices (like the CPI), the GDP deflator is not based on a fixed basket of goods and services. The basket is allowed to change with people's consumption and investment patterns.[2] Specifically, for the GDP deflator, the "basket" in each year is the set of all goods that were produced domestically, weighted by the market value of the total consumption of each good.

GeoffF100 wrote:

tjh290633 wrote:Plot GDP actual and Inflation (RPI) on the same basis, starting with them equal.

RPI inflation is not what we want from a macro-economic standpoint. The Wikipedia link above states:

Unlike some price indices (like the CPI), the GDP deflator is not based on a fixed basket of goods and services. The basket is allowed to change with people's consumption and investment patterns.[2] Specifically, for the GDP deflator, the "basket" in each year is the set of all goods that were produced domestically, weighted by the market value of the total consumption of each good.

Then plot GDP and CPI with the same starting value, i.e. rebase on to the other's starting value. The result is the same.

TJH

tjh290633 wrote:

GeoffF100 wrote:

tjh290633 wrote:Plot GDP actual and Inflation (RPI) on the same basis, starting with them equal.

RPI inflation is not what we want from a macro-economic standpoint. The Wikipedia link above states:

Unlike some price indices (like the CPI), the GDP deflator is not based on a fixed basket of goods and services. The basket is allowed to change with people's consumption and investment patterns.[2] Specifically, for the GDP deflator, the "basket" in each year is the set of all goods that were produced domestically, weighted by the market value of the total consumption of each good.

Then plot GDP and CPI with the same starting value, i.e. rebase on to the other's starting value. The result is the same.

TJH

The GDP deflator is neither the RPI nor the CPI. It is a measure of inflation in the whole economy rather than inflation in the price of a consumer basket of goods.

GeoffF100 wrote:

tjh290633 wrote:

GeoffF100 wrote:

tjh290633 wrote:Plot GDP actual and Inflation (RPI) on the same basis, starting with them equal.

RPI inflation is not what we want from a macro-economic standpoint. The Wikipedia link above states:

Unlike some price indices (like the CPI), the GDP deflator is not based on a fixed basket of goods and services. The basket is allowed to change with people's consumption and investment patterns.[2] Specifically, for the GDP deflator, the "basket" in each year is the set of all goods that were produced domestically, weighted by the market value of the total consumption of each good.

Then plot GDP and CPI with the same starting value, i.e. rebase on to the other's starting value. The result is the same.

TJH

The GDP deflator is neither the RPI nor the CPI. It is a measure of inflation in the whole economy rather than inflation in the price of a consumer basket of goods.

So where do we find your GDP deflator index?

TJH

tjh290633 wrote:

GeoffF100 wrote:

tjh290633 wrote:

GeoffF100 wrote:

tjh290633 wrote:Plot GDP actual and Inflation (RPI) on the same basis, starting with them equal.

RPI inflation is not what we want from a macro-economic standpoint. The Wikipedia link above states:

Unlike some price indices (like the CPI), the GDP deflator is not based on a fixed basket of goods and services. The basket is allowed to change with people's consumption and investment patterns.[2] Specifically, for the GDP deflator, the "basket" in each year is the set of all goods that were produced domestically, weighted by the market value of the total consumption of each good.

Then plot GDP and CPI with the same starting value, i.e. rebase on to the other's starting value. The result is the same.

TJH

The GDP deflator is neither the RPI nor the CPI. It is a measure of inflation in the whole economy rather than inflation in the price of a consumer basket of goods.

So where do we find your GDP deflator index?

TJH

It is not mine. You will find the GDP deflator here:

https://www.gov.uk/government/statistic ... 021-budget