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Why is the Rate of Decline in the GDP Deflator So Large?

--Exploring the background against the discrepancy from the Consumer Price Index--

July 2003
Maiko Koga

The Economic Commentary series are edited and published by the Bank of Japan's Research and Statistics Department in order to provide material to deepen understandings on economic developments, mid-term economic themes, and economic indicators and statistics. The views expressed in the report are those of the authors and do not necessarily reflect views of the Bank of Japan. The English version of this series is translated by our staff based on the Japanese original.

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Abstract

The year-on-year rate of decline in the Consumer Price Index (CPI)--excluding fresh food, since it fluctuates significantly--narrowed to -0.4 percent in April 2003. Meanwhile, the year-on-year change of the GDP deflator for the first quarter of 2003 dropped to its lowest record of -3.5 percent. Even from a longer perspective, the CPI and GDP deflator show different movements; one's assessment of deflation differs substantially from the other's, depending on which index is being observed. This paper examines how the movements of these two price indices actually differ and what brings about those differences.