Reason for Opposite Movement of GDP Deflator Inflation with CPI Inflation in Korea

Abstract

Korea's CPI inflation reached 6.3% in Jul. 2022, the fastest increase since Nov. 1998. However, the quarterly GDP deflator inflation for the third quarter of 2022 was only 0.2% over the same quarter of 2021. The differences between Korea's CPI and GDP deflator are the way of measuring price and the set of goods and services they cover. The goods and services in the investment, government expenditures, export, and import are not in the consumer's basket but in GDP. Moreover, imported goods and services contribute to the GDP negatively. If the import price increases when other things stand still, the GDP deflator decreases. In contrast, the cost of consumer baskets generally increases. Therefore, the import price changes only can induce the opposite moves of the CPI and the GDP deflator inflations.