Nominal vs. Real GDP

Now nominal GDP is the value of output produced in current prices. It can increase from year to year if either output or price increases. Real GDP is the value of output produced in constant base year price, it can increase year to year only if output increases.

Nominal GDP = Current year quantity x Current year price
Real GDP = Current year quantity x Base year price

From these it's possible to find a GDP deflator, it is a price index used to adjust from nominal to real GDP.

Deflator = (Nominal GDP x Real GDP) x 100

Now from the deflator we can calculate the inflation rate
Inflation Rate = (Deflator of current year- Deflator of old year) / Deflator of old year


Now there is also the consumer price index ( CPI), it is the most commonly used measurement of inflation.

(The price of the market basket of the current year/ the price of the market basket in the same year) x 100 = CPI