This is from Rick Davis of the Consumer Metrics Institute regarding today’s BEA report of 2ndQ2013 GDP.
For this set of revisions the BEA assumed annualized net aggregate inflation of 0.58%. In contrast, during the second quarter (i.e., from March to June) the seasonally adjusted CPI-U index published by the Bureau of Labor Statistics (BLS) rose by 1.04% (annualized), and the price index published by the Billion Prices Project (BPP) rose at an annualized rate of 1.76%. As a reminder: an understatement of assumed inflation increases the reported headline number — and in this case the BEA’s relatively low “deflator” boosted the published headline rate. If the CPI-U had been used to convert the “nominal” GDP numbers into “real” numbers, the reported headline growth rate would have been a somewhat lower +2.03%. And if the BPP index (which arguably best reflects the experiences of the American consumer) had be used as the “deflator,” the economy would have been a more modest +1.31% annualized rate.
BEA uses an inflation adjustment (deflator) for which it offers no explanation.