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Economic Indicators
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Economic Indicators

What is an economic indicator? Click to read

Economic indicators are statistical data that provide information on the state of the economy, showing us, in addition to its main characteristics, how it is changing over time, which makes it possible to make projections and comparisons between different periods and territories.

Economists use these indicators to measure the past and present state of an economy and to anticipate the future. In short, to analyse the economy and see how it is evolving.

Some of the most relevant economic indicators are:

  • Gross Domestic Product (GDP)
  • Inflation
  • Exchange rate
  • Labour market
What is Gross Domestic Product (GDP) and what is it for? Click to read

Gross Domestic Product (GDP) is the monetary value of goods –from foodstuffs, vehicles, machinery or textiles– and services –such as health, education, etc.– produced at the national level during a given period of time. It does not matter whether the public or private organisations producing them are local or foreign, the requirement is that the final good or service is carried out in the country to be analysed. GDP will reflect the monetary value of everything that reaches the final consumer.


For example, to manufacture a vehicle, components such as wheels are needed. To calculate the total production value, we do not take into account the value of the wheels separately, but only the value of the complete vehicle, in order to avoid double counting.

To avoid such inconveniences and inconsistencies, only final goods and services are included in GDP, not intermediate goods and services.


What is GDP for?

The absolute value of GDP is used to compare the economic size of countries, free trade areas or continents. Moreover, its evolution is crucial for a market to compare with itself over time: the annual rate of change of Gross Domestic Product compared to the previous year is the main indicator of the health of an economy.

An increase in GDP reflects an increase in economic activity. If economic activity booms, it means that unemployment tends to fall and per capita income rises. This in turn leads to economic growth, as citizens and businesses will be more inclined to spend rather than save.  Moreover, following an increase in GDP, government tax revenues tend to rise, as the government collects more taxes and can therefore allocate these amounts to expenditure items.

Quarter-on-quarter changes in GDP are also very relevant: in Europe, a country enters a technical recession when its GDP falls for two consecutive quarters compared to the previous quarter.

What is inflation and how is it measured? Click to read

Inflation is the generalised and sustained increase in the prices of goods and services in a country over a given period of time. It results in a loss of purchasing power, as the value of the currency depreciates.

That is, inflation makes your money worth less and less. Therefore, tomorrow, you will be able to buy fewer things than today with the same money.

The indicator used to measure inflation in a country is the Consumer Price Index (CPI). This index takes into account the monthly variation in the prices of goods and services consumed by households. It is compiled on the basis of the prices of a standard shopping basket for an average household. This basket includes items from different categories, such as food, beverages, clothing and footwear, housing, household goods, medicine, transport, communications, leisure and culture, hotels, cafes and restaurants, education, and other goods and services.  Its composition is regularly reviewed to add new products whose consumption is becoming significant, or to exclude others that are no longer significant.
This index tells us what happens to prices (whether they go up or down) from one month to the next, and does not indicate the prices themselves. In other words, it does not show the price of consumer products, but rather the increase or decrease in prices.

If prices move upwards, it is said that there is inflation (increase in the prices of goods and services).  But it should be borne in mind that inflation will always be referenced within a certain period (e.g. it does not mean that if inflation falls, prices will fall, since with lower inflation prices continue to rise, but at a slower rate than in the past). If prices, on the contrary, move downwards, it is said that there is deflation (decrease in prices of goods and services).

The importance of the CPI is that it measures the change in our purchasing power. If prices go up and our incomes go up less or remain constant, we will be able to buy fewer goods and services, so we are said to lose purchasing power: we are poorer, even if we earn the same amount. In the same way, if a worker's salary is increased in the same proportion as the CPI, his or her purchasing power is maintained, i.e. the worker will be able to buy exactly the same amount of goods and services with his or her new salary, even if the salary has been increased

Causes of inflation. Advantages and disadvantages. Click to read

Inflation can be caused by a number of factors, such as the following: