There is no shortage of correlations such as the one shown below (PPI VS real GDP) that brings into question the real GDP reported over the past two years. In other words real GDP appears somewhat inflated since Q3 2009. You can substitute PPI in the chart below and find many similar relationships or should I say “divergences from reality.”
This then begs the question how does the price index which is used to convert nominal GDP into real GDP compare to the reality of inflation. Below is a chart comparing CPI-U (not excluding food and energy) versus the BEA reported Product Price Index. Notice the divergence since Q3 2009?
For such a complicated calculation that GDP can be it is quite amazing a little thing like the price index can be used to simply inflate real GDP. Dare I say manipulate the truth?
Is The Price Index Inflating Real GDP- Macro Story.
Images: Flickr (licence/attribution)
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