In general, constant price series are derived using price indices or unit-values to deflate estimates in current prices. For example, expenditure-based Gross Domestic Product (GDP) at constant prices is equal to the sum of household consumption expenditure, government consumption expenditure, fixed capital formation and investment in inventories and net exports. Each of these components is deflated using indices at the most detailed level possible.
Constant price estimates in local currency units are converted to U.S. dollars for aggregation. When converting to U.S. dollars, we preserve the growth rates observed in the constant price series measured in local currency units. Constant price estimates are scaled to a common reference year (currently 2015), for which the value is converted to US dollars using the appropriate conversion factor. For more details see ‘What is your constant US dollar methodology?’
The following illustrates a typical compilation of GDP at constant prices measured via the expenditure approach:
Household consumption expenditure at constant prices is in most countries derived by deflating the components of household consumption in current prices with corresponding elements measured in the consumer price index (CPI). The CPI is a comprehensive measure of changes in the purchasers' prices of consumer goods and services. Most countries do not apply the overall CPI directly to deflate the total household consumption expenditure, instead preparing estimates at constant prices at the most detailed level possible. The consumption basket underlying the CPI might differ in coverage and composition from that underlying household expenditure measured in the national accounts, and there may also be differences in base periods chosen in compilation.
Government and Non-Profit Institutions Serving Households (NPISH) consumption expenditures at constant prices are generally derived using the deflator for the non-market production by government and NPISH. Output of non-market services at constant prices are derived either by volume extrapolation or by deflating output at current prices using a compound price index.
Because changes in relative prices for different types of fixed capital can be significant, constant price estimates of gross fixed capital formation must be compiled at the most detailed level possible. Most countries compile separate estimates for 'buildings and other construction', 'machinery and equipment', and 'motor vehicles and other transport equipment.' For machinery and equipment (including transportation equipment), deflators are generally derived as a weighted average of the relevant components of the producer price index and price or unit value indices for imports of capital goods.
In many countries imports and exports are deflated using unit-value indices. Importers and exporters are generally required to declare the value and the quantity of shipments. Unit-value indices can be constructed by dividing the value by the quantity reported for each product-group. There is a disadvantage in using these indices, as they reflect not only price changes but also changes in quality.