Current and Constant Prices

Current-price estimates value an economy’s output or income using the prices prevailing in the year being measured, so they reflect both quantity and price changes. Constant-price estimates value current production using the prices of a chosen base year, thereby providing a measure of changes in the volume of economic activity.

How the two estimates differ

• Current-price GDP is also called nominal GDP; its growth may result from higher production, higher prices, or both.
• Constant-price GDP is commonly called real GDP; holding prices constant isolates changes in quantities or production volumes.
• In the base year, current-price and constant-price estimates are ordinarily equal because the same year’s prices are used.
• The base year is revised periodically so that the price structure and production pattern remain representative of the economy.

Conversion and interpretation

The implicit GDP deflator is calculated as current-price GDP divided by constant-price GDP, multiplied by 100. It captures the price change for domestically produced final goods and services covered by GDP, unlike a consumer price index that tracks a specified basket of consumer goods and services.

• If current-price GDP rises faster than constant-price GDP, part of the increase reflects a rise in the overall price level.
• Constant-price estimates may be obtained by deflating current values with suitable price indices or by extrapolating base-year values using quantity indicators.

Uses in economic analysis

• Constant-price estimates are appropriate for measuring economic growth and comparing production across years without the distorting effect of inflation.
• Current-price estimates show the monetary size and contemporary sectoral structure of the economy; they are useful for ratios such as taxes, fiscal deficit or debt relative to GDP.
• Constant-price comparisons depend on the selected base year and become less representative as relative prices and the economy’s structure change.