Which item is included in the CPI but not in the GDP deflator?

• A. Imported consumer goods are included in the CPI but not in the GDP deflator.
• B. Imported consumer goods are included in the GDP deflator but not in the CPI.
• C. Both include imports equally.
• D. Neither includes imports.

Answer: (A)

Prices in the CPI reflect the goods and services purchased by a typical consumer, including imported items. That means the prices of imported consumer goods enter the CPI basket and can push the overall index up or down. The GDP deflator, on the other hand, measures the prices of all final goods and services produced domestically. Since imports are not domestically produced, they aren’t included in the GDP deflator. So imported consumer goods are counted in the CPI but not in the GDP deflator.