Dependency of GDP Growth Rates on Methods for Price Adjustment During Times of Rapid Structural Change and High Inflation

It is a well-known fact that price adjustment methods using weights from different years yield different results. Usually, changes in production and consumption structures over time are gradual, causing only minor differences between various price adjustment methods. However, the COVID-19 pandemic and the subsequent surge in inflation rates triggered a series of global shocks to production and consumption patterns. This study explores discrepancies in real GDP growth rates in such an unstable environment, originating from various price adjustment methods. Using National Accounts data for the EU (2019-2023), different price adjustment methods are applied to GDP demand components to derive economic growth. Real growth rates are reweighted using (i) weights from the current year, (ii) a fixed base year 2019, and (iii) the Fisher price index. Compared to the (iv) previous year's price base (chain-linking, mandatory for EU member states), significant differences emerge. The largest annual GDP growth difference was 1.4 percentage points in 2021, with cumulative differences over 2020-2023 reaching up to 1.8 percentage points, or 0.4 percentage point per year. Chain-linking propagates past growth rates forward, potentially skewing measures based on real GDP developments, such as productivity. If structural changes are temporary, a pre-crisis fixed base year better reflects post-crises growth.